Consumers’ savings rates have steadily declined over the years, and perhaps it isn’t surprising reports Consumer Affairs. Banks have paid little to no interest on savings for the last couple of decades.
But the rise of online banks and fintech firms (today, fintech companies directly compete with banks in most areas of the financial sector to sell financial services and solutions to customers. Mostly due to regulatory reasons and their internal structures, banks still struggle to keep up with fintech startups in terms of innovation speed) has been a game-changer. With less overhead, these firms can pay higher rates of interest while still offering FDIC protection.
Earlier this year, Wealthfront launched a simple savings account that paid the highest interest rate available. Recently, the rate has gone up to 2.51 percent, significantly higher than the U.S. government’s 10-year Treasury bond.
What makes the Wealthfront Cash Account particularly compelling is the fact that there are no fees; you can open an account with as little as $1 and withdraw your money at any time. Deposits are FDIC insured up to $1 million, which is more than most banks.
“Our cash account is another important milestone on our path to deliver our ultimate vision of self-driving money,” said Wealthfront CEO Andy Rachleff when the account was launched. “In order to optimize and automate all of our clients finances, we need to offer ideal short and long-term destinations for their cash. You can expect us to further extend our services into the banking sector this year.”
Once upon a time, passbook savings account at your local bank might pay as much as 3 percent interest, but those days are long gone. Today, the average bank savings account rate is a paltry 0.1 percent, meaning the return on a Wealthfront Cash Account is about 25 times higher.
“Every year the four largest banks in the U.S. make over $300 billion in revenue while paying consumers next to nothing on their cash deposits,” said Dan Carroll, co-founder of Wealthfront. “If the $8 trillion in cash sitting at the commercial banks was moved to a service like Wealthfront instead, consumers would have an additional $170 billion in their pockets every year. Imagine how impactful that extra money could be on people’s lives.”
Other investment products
Weathfront offers a range of financial services and investments, many of which are subject to market forces. Those kinds of investments should be carefully considered, perhaps with guidance from an objective and qualified financial advisor.
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Savings accounts, on the other hand, are pretty straightforward. They can be a good place to tuck away money for an emergency fund. As always, it’s advisable to read the fine print carefully so that you fully understand the terms.