Note: As of April 19, 2021, the Wealthfront Cash Account has a 0.10% APY. Read more about it here .
On Tuesday, March 3 the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 0.50% to 1%–1.25% because of risks posed to the U.S. economy by the coronavirus, COVID-19. As we’ve written in the past, a decrease in the fed funds rate means we need to decrease the interest rate we pay on the Wealthfront Cash Account, too. We are lowering our interest rate (APR) by 0.50%, which, due to compounding, translates to an APY decrease of 0.51%. This means the APY on our Cash Account is changing from 1.78% to 1.27%.
Usually, interest rate cuts are communicated at the end of regularly scheduled FOMC meetings, which are held eight times a year. The next meeting is scheduled for March 17-18, but this surprise rate cut occurred off-cycle. Federal Reserve Chair Jerome Powell acknowledged the uncertainty COVID-19 has introduced in the economy and expressed that the Fed was lowering interest rates as part of its commitment to keeping the U.S. economy strong.
What does this mean for you?
In the clearest terms, here’s what a lower APY on your Wealthfront Cash Account means for your money: a 0.51% rate decrease means that every $1,000 in your account will now earn $5.10 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. This means that when the fed funds rate declines, our rates also decline. Because we are a broker-dealer, regulations do not allow us to pay out a rate in excess of what our partner banks pay us. This means we are forced to lower the rate on the Wealthfront Cash Account whenever the Fed lowers rates. We expect other financial institutions to lower their rates as well but it may not happen for a few weeks. If you’re considering moving your funds to another high-yield account that has yet to lower rates, check out our blog post about why that may not be the best move.
Even with a lower rate, you’ll still enjoy everything else you love about your Wealthfront Cash Account, which comes with unlimited free transfers, no fees, and FDIC insurance up to $1 million through our partner banks. Late this spring, we’ll add exciting new features to the Cash Account, including debit cards, direct deposit, and the ability to pay bills.
Our commitment to you
We believe in helping our clients earn more money on all their money, and our commitment to you hasn’t changed. We promise to be 100% transparent with you if anything changes and always pass on as much interest as we possibly can. We’ll keep providing you with the best advice we can, no matter what.
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. FDIC.gov national industry average savings rate as of March 4, 2020.
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.
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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