I’ve been saving for my emergency fund for quite awhile.
While I have accumulated a fairly sizable portfolio for my age, the majority of my net worth is locked up in retirement accounts and other investments. Theoretically, I could tap my brokerage accounts in the event of an emergency. However, I decided it was time to increase my cash reserves.
The one problem?
We all know that the value of cash erodes with inflation. By contrast, investments appreciate in value with the overall market. The thought of having my money just sitting in a bank account earning no interest seemed like financial blasphemy. Instead, I wanted my money to work for me.
However, as we all have experienced recently, the market does not always appreciate in the short-term. Just as the market plummets due to an economic downturn, I could find myself unemployed or experiencing another emergency. I didn’t wan to sell my stocks at a lower level. Instead, I wanted a fund I could access without feeling like I’m selling my stock at the lows.
After weeks of research and contemplation, I determined that a high-yield savings account offered the best of both worlds.
What is a High-Yield Savings Account?
Just like your traditional bank account, a high-yield savings account provides a FDIC-insured way to store money. Unlike traditional bank accounts, you earn substantially more interest that will likely offset much of the impacts of inflation.
This protects your money from losing value as the cost of living increases.
Unfortunately, traditional savings accounts do not provide this sort of protection. In fact, most savings, checking, and money market banks pay next to nothing.
While these accounts may work well as operating accounts to deposit income or pay bills, they do not provide the optimal means to store substantial savings.
By contrast, high-yield accounts help insulate your savings from inflation. Many online, high-yield accounts offer annual percentage yields (APYs) that are ~20x more than the nominal rates listed above.
These higher yielding accounts offer the ideal place to store money you cannot afford to lose while also earning more interest. Many high-yield savings accounts are FDIC-insured. Therefore, these accounts are great for emergency funds or saving for a down payment or other near-term purchase.
Choosing Wealthfront
With plenty of financial institutions offering high-yield accounts, landing on Wealthfront took quite a bit of contemplation.
I first heard of Wealthfront through researching their robo-investing platform just a few years ago. Even though I do not use their investing service, I saw the interest rate offered through Wealthfront Save was substantially higher than rates I had seen by other institutions. This certainly peaked my interest.
However, could I really trust Wealthfront with a substantial portion of my liquid cash? I needed more information before committing to house my emergency fund with Wealthfront.
What is Wealthfront?
Firstly, Wealthfront is not a traditional or even an online bank. Instead, the company is classified as a “robo-advisor.”
Robo-advisors provide semi-customizable strategies and recommendations based on an assessment of your goals and risk tolerance. Further, algorithms automatically invest contributions into a variety of low-cost index funds that match your goals. Many robo-advisors provide tax-optimization strategies that will harvest losses and lower your tax bill.
With over $20 billion in assets under management (AUM) as of September 2019, Wealthfront is one of the largest robo-adivisors on the market today.
Great, but I don’t want to risk my emergency fund in the market
The biggest concern I had for my cash reserves was stability.
I wanted to ensure 100% of the balance was available to withdraw if I needed money for an emergency. Therefore, if I needed to make a withdrawal, I couldn’t risk the principle losing value due to market volatility.
Even though Wealthfront is NOT a bank, their savings account program mimics services banks offer.
Just like a traditional, brick-and-mortar or online bank, my account is 100% FDIC-insured (up to $1 million). However, traditional banks generally only provide FDIC-insurance up to the first $250,000. Therefore, if you have substantial cash savings, this could be an added benefit of going with Wealthfront.
Even though the high-yield savings account program comes through Wealthfront Brokerage, I don’t have to worry about my cash account losing value.
Other benefits of Wealthfront
Wealthfront provides many other benefits besides being an established, trustworthy platform.
High Interest Rates
Receiving higher interest on your cash balance helps insulate you from inflation. While savings rates offered by banks are dependent upon the Federal Reserve, Wealthfront has some of the highest in the business.
In fact, the interest on savings is over 18x higher than the national average.
Wealthfront provides these higher rates through their partner banks.
Unlimited, Free Transfers
Another huge differentiator relates to the fact that Wealthfront offers unlimited transfers without any fees.
This means you do not need to worry about being nickel and dimed when you want to access your money. Alternatively, many other financial institutions may offer competitive rates. However, they often limit the number of transfers or charge fees after reaching a certain number of withdrawals.
Hopefully, your emergency fund or savings account won’t be in use too often. However, if you lose your job and need to access your money in multiple installments throughout the month, Wealthfront won’t hit you with any restrictions or fees.
Completely Free
As you would expect, opening an account with Wealthfront is completely free.
Wealthfront does not charge any service, advisory, or management fees on their high-yield cash account. This means your balance can grow unimpeded by unnecessary fees.
$1 Account Minimum
For less than a cup of coffee, you can open an account and begin saving today. In fact, Wealthfront only requires $1 to open the account.
Plus, Wealthfront does not have any further deposit requirements.
By contrast, some banks may advertise rates that are competitive with Wealthfront. However, these rates could be promotion rates or only available on balances over a certain amount. Further, they may require you to maintain a high balance to continue receiving the higher rate.
With Wealthfront, what you see is what you get. While your rate is subject to change, this is based on the Federal Reserve lowering or increasing the Fed funds rate and would probably impact other institutions as well.
Opening the Account
Opening my high-yield savings account was extremely easy.
Here’s a step-by-step guide that took only minutes.
Step 1: Opening a Wealthfront account
Get started with these extremely easy steps. Simply select “Open a Wealthfront account” to begin the process!
Step 2: Fill out basic user information
Step 3: Enter phone number for two-factor security identification
For increased security, Wealthfront asks that you enter your mobile number. Once entered, you will receive an automated text message that contains a unique set of numbers to validate your account.
Step 4: Validating other personal information
In order to open an account with any financial institution, you will need your Social Security Number, date of birth, and other personal information. Fortunately, if you use TurboTax, this process can be sped up by clicking “Sync with Intuit TurboTax.”
Since I use TurboTax, my information was automatically updated.
Step 5: Select the account type “high-interest cash”
Step 6: Link to your bank and fund your account
Linking to your bank is extremely easy. Don’t see yours listed or in the search tool? No worries, my regional bank was not in the search function.
Simply, click on “I don’t see my bank.” You will receive a prompt to enter your routing number and account number.
Step 7: Elect your transfer amount
Before your money is transferred, Wealthfront may deposit a very small in your account and ask you to verify the bank account. After verifying the deposit, your money should be transferred in 1-2 days.
Start your savings journey today!
With Wealthfront, saving has never been easier.
Whether you want to save for a rainy day, a down payment on your house, or other savings goals, opening an account with Wealthfront is the first step you should take.
With a high-yield savings account through Wealthfront, you receive a competitive interest rate without the hassle of fees and a ton of restrictions. This provides greater access to your money while helping you combat some of the impacts of inflation on your dollars.