Today, the annual percentage yield (APY) on the Wealthfront Cash Account decreased from 2.07% to 1.82%. This change comes as a result of the Federal Reserve’s decision to once again lower the target federal funds rate by 0.25% to 1.75%. While a lower APY isn’t exactly news we want to give you, this new rate is still one of the highest interest rates in the market, according to Bankrate.com.
In the clearest terms, here’s what a lower APY on your Wealthfront Cash Account means for your money: a 0.25% rate decrease means that every $1,000 in your account will now earn $2.50 less in annual interest.
Why is the rate going down?
The partner banks where we broker our deposits pay us a rate based on a premium fixed to the fed funds rate. So when the fed funds rate declines, our rates decline by an equal amount. As a broker-dealer we are not allowed to pay out a rate in excess of what the banks pay us, so we are forced to lower rates on the Wealthfront Cash Account whenever the Fed lowers rates.
But even with a lower rate, you’ll still enjoy everything else you love about your Wealthfront Cash Account — unlimited free transfers, no fees, and your cash is covered by FDIC insurance for up to $1 million through our partner banks. And coming soon, you’ll also get bill pay, direct deposit, and ATM cards.
Another way to grow your money
While we know that the lower APY is a bummer, the Wealthfront Cash Account (or a high-yield savings account in general) is not the only way to grow your money — particularly the money you don’t plan to spend in the next few years. In fact, we believe that the money you’re saving for the long term (greater than five years) should be invested in a portfolio of low-cost index funds.
Investing is the right way to grow your money for the long term. Here’s why: history has shown that financial markets generally rise over the long run. For example, Wealthfront taxable investment accounts have realized 4-8% in annual, net-of-fees, pre-tax returns since inception in 2011, depending on risk score.* That’s why, in order to maximize your wealth over the long term, we recommend that any cash you don’t need in the short term should be invested rather than kept in a high yield cash account.
We recommend investing that extra money in a Wealthfront investment account, made up of a globally diversified portfolio of low-cost index funds. Our software automatically rebalances your portfolio, minimizes your taxes through tax-loss harvesting, and efficiently manages your risk — all at an industry-low cost. You can fund your new investment account right in the app with a transfer from your cash account or a linked bank account. And your Wealthfront app lets you easily move money between your Wealthfront Cash Account and investment accounts so your money is always exactly where you want it.
A gift to you
We know how important your money is to you. That’s why we believe it’s imperative to understand how best to grow it for both the short and long term. This weekend, we’re offering to manage $5,000 for free on your first Wealthfront investment account — just open an account by Sunday 11/3 at 11:59 pm EST to benefit from this offer.
If you already have a Wealthfront investment account, you know how easy Wealthfront makes it for you to invest and start saving towards your long-term goals — so spread the word. You’ll receive an additional $5,000 managed for free when you refer someone to open a Wealthfront Cash Account or investment account.
Wealthfront isn’t just a place to help you stash your short-term cash. We’re also here to help you plan and grow your money for the long term. We’ve built a consolidated financial ecosystem that makes it simple for you to see your entire financial picture and manage your savings and investments without having to log in and out of multiple accounts.
We promise to be 100% transparent with you if anything changes and always pass on as much interest as we possibly can. We also promise that we will always provide you with the best advice we can — especially when times get a little tougher. That’s what makes us different from traditional banks and financial institutions, and market fluctuations like this only serve to prove it.
* Range calculated using average annual Wealthfront Advisers LLC (“Wealthfront Advisers”) client taxable account returns across all risk score profiles from its inception in October 2011 to October 30, 2019. The risk scores range from 0.5 to 10 in half integer increments, for a total of 20 different risk profiles, with each risk score having a different target asset allocation comprised of U.S stocks, foreign developed market stocks, emerging market stocks, dividend growth stocks, corporate bonds, treasury inflation-protected securities, U.S. government bonds, municipal bonds, and other asset classes. The calculated returns are annualized and provided on a pre-tax basis as well as net of all advisory fees and expenses. The returns include the application of Wealthfront Advisers’ daily tax-loss harvesting strategy and reinvestment of dividends. Future performance may deviate from past results due to changes in recommended asset allocations, as well as differences in future market returns.
The Wealthfront Cash Account Annual Percentage Yield (APY) is as of November 1, 2019. The APY may change at any time, before or after the Cash Account is opened. The APY for the Wealthfront Cash Account represents the weighted average of the APY on the aggregate deposit balances of all clients at the program banks. Deposit balances are not allocated equally among the participating program banks.
Cash Account is offered by Wealthfront Brokerage LLC (“Wealthfront Brokerage”) a member of FINRA/SIPC. Neither Wealthfront Brokerage nor any of its affiliates are a bank, and Cash Account is not a checking or savings account. Wealthfront Brokerage conveys Cash Account funds to depository institutions that accept and maintain such deposits. The cash balance in the Cash Account is swept to one or more banks (the “Program Banks”) where it earns a variable rate of interest and is eligible for FDIC insurance. FDIC insurance is not provided until the funds arrive at the Program Banks. While funds are at Wealthfront Brokerage, and before they are swept to the Program Banks, they are subject to SIPC’s protection limit of $250,000 for cash. FDIC insurance coverage is limited to $250,000 per qualified customer account per banking institution.
Wealthfront Brokerage uses more than one Program Bank to ensure FDIC coverage of up to $1 million for your cash deposits. For more information on FDIC insurance coverage, please visit www.FDIC.gov. Customers are responsible for monitoring their total assets at each of the Program Banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. The deposits at Program Banks are not covered by SIPC.
This is not an offer, or solicitation of any offer to buy or sell any security, investment or other product. All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Please see our Full Disclosure for important details.
Wealthfront, Wealthfront Advisers and Wealthfront Brokerage are wholly owned subsidiaries of Wealthfront Corporation.