A year ago, as a result of the economic turmoil accompanying the pandemic, the Federal Open Market Committee decreased the federal funds rate dramatically and we were forced to cut the APY on the Wealthfront Cash Account to 0.26%. We hated doing this, and in the weeks following the cut, we searched tirelessly for ways to pay you more. We succeeded – we found a bank that was willing to pay a higher interest rate on deposits for one year because the additional deposits allowed them to make more Paycheck Protection Program loans. In turn, we raised our APY to pass along that interest to you. It was a win-win.
Unfortunately, that deal has now run out and banks are no longer willing to pay much for deposits. As a result, we are lowering the APY on our Cash Account from 0.35% APY to 0.10%. We know this is disappointing news. We’ll keep working hard to find ways to pay you more interest, just as we’ve done in the past.
Low interest rates and a glut of deposits
The APY on the Cash Account is in large part determined by the rate we receive from our partner banks. The rate banks pay depends on two factors: the effective federal funds rate (EFFR) and how eager they are to pay for deposits (which translates to a premium fixed to the EFFR). Typically, banks are willing to pay more for deposits in periods of economic expansion as they are, for example, able to make more from lending those deposits than they pay to acquire them.
The EFFR fell sharply in 2020 and has remained very low. And during the past year, bank deposits climbed to record levels – meaning banks are awash in cash and aren’t willing to pay much for deposits. Combined, these developments mean that our partner banks are paying us very little right now.
People, not institutions
Even with a lower rate, the Cash Account helps you simplify your finances and grow your wealth faster. With the Cash Account, you can access all the checking features you need, get paid up to two days early with direct deposit, automate your savings strategy with automatic transfers that are sensitive to your spending, and invest your money within minutes when you transfer funds to a Wealthfront Investment Account.
We are deeply committed to our mission to build a financial system that benefits people, not institutions. That mission is at the heart of everything we do, and your financial wellbeing is central to every decision we make as a company. We can’t pay you more interest right now, but we remain extremely focused on providing value to you in other ways. Tomorrow, we’ll be rolling out powerful new features to help you streamline and customize the way you manage your finances. We look forward to sharing them with you.
We’ve partnered with Green Dot Bank, Member FDIC, to bring you checking features.
Checking features for the Cash Account are subject to identity verification by Green Dot Bank. Debit Card is optional and must be requested. Wealthfront Cash Account Visa® Debit Card is issued by Green Dot Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Visa is a registered trademark of Visa International Service Association. Green Dot Bank operates under the following registered trade names: GO2bank, GoBank, Green Dot Bank and Bonneville Bank. All of these registered trade names are used by, and refer to, a single FDIC-insured bank, Green Dot Bank. Deposits under any of these trade names are deposits with Green Dot Bank and are aggregated for deposit insurance coverage. Wealthfront products and services are not provided by Green Dot Bank. Green Dot is a registered trademark of Green Dot Corporation. ©2021 Green Dot Corporation. All rights reserved.
Early availability depends on timing of payor’s payment instructions and fraud prevention restrictions may apply. As such, the availability or timing of early direct deposit may vary from pay period to pay period. Interest does not begin accruing until funds arrive at the program banks, which may take up to one business day.
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. We convey funds to partner banks who accept and maintain deposits, provide the interest rate, and provide FDIC insurance. Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and financial planning tools are provided by Wealthfront Software LLC (“Wealthfront”).
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. FDIC insurance coverage is limited to $250,000 per qualified customer account per banking institution. Wealthfront 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.
The Annual Percentage Yield (APY) for the Cash Account 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.
The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers or its affiliates endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.
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.
© 2021 Wealthfront Corporation. All rights reserved.
About the author(s)
The Wealthfront Team believes everyone deserves access to sophisticated financial advice. The team includes Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), a Certified Public Accountant (CPA), and individuals with Series 7 and Series 66 registrations from FINRA. Collectively, the Wealthfront Team has decades of experience helping people build secure and rewarding financial lives. View all posts by The Wealthfront Team