With Lower Fees, Betterment Gets A Bit Better For New Investors

We’ve long been a fan of Betterment, one of the biggest robo-advisors on the market today. But is Betterment good for new investors compared to other options? In the past, we were critical of Betterment’s fee structure for new investors, which, up until now, overly-burdened some customers with the smallest balances.

Fortunately, that’s no longer true.

Betterment announced this week that it’s doing away with its old fee schedule, and going to a single rate – 0.25% – for all customers, no matter the size of their balance.

Betterment’s old fee structure penalized those who didn’t have much money

Previously, investors with lower balances—under $10,000—had to jump through hoops (namely, a recurring monthly deposit of at least $100) to get a rate (0.35%) that was still higher than Betterment’s competition. Wealthfront, for example, is free for accounts under $10,000.

If you couldn’t spare that $100 monthly deposit, Betterment’s fees were even worse: You were charged a flat fee of $3 a month. For people with particularly low balances, that made Betterment’s service just a terrible deal.

While investors with modest Betterment balances are getting a break, customers with balances over $100,000 will see a slight fee increase. Previously, Betterment reduced their annual fee to 0.15% on balances over $100,000. Now, the flat rate of 0.25% will still apply.

There’s a silver-lining for high net worth investors, however: Betterment reduces any fees on account balances over $2 million. The fee drops to 0.15%.

New premium services offer access to human advisors

Better also announced two new services, Betterment Plus and Betterment Premium, that offer more services in exchange for higher fees.

This is a welcome change—now people will be paying based on the level of service they’re getting, not how much money they already have.

The new 0.25% flat rate is for a product known as Betterment Digital.

In an effort to make their financial advice more accessible to everyone, Betterment is combining Plus and Premium plans to make unlimited phone-call access to CFP® professionals available at a 0.4% annual fee.

The Betterment Premium plan, which requires a minimum balance of $250,000, also offers unlimited access to that same team of Certified Financial Planners and other licensed financial experts. This has 0.5% annual fee.

Also, all Betterment customers can now message a licensed financial experts via Betterment’s mobile app.

Experts can assist with deciding which funds to move to Betterment, setting goals (like saving for college, a house, or retirement), and identifying which Betterment tax features may be right. They can also help you make important investment decisions, like choosing risk levels, amounts to invest, and types of accounts.

Current promotion: get up to a year managed free!

At the time of writing, Betterment’s current 60-day promotion offers free account management for up to a year (depending on how much you open in a new account). Here’s their table for how long they’ll manage your account without charging you.

• $15,000 – $49,999: one months managed free
• $50,000 – $249,999: six months managed free
• $250,000+: one year managed free

Tax-Loss Harvesting can now coordinate across spousal accounts

A long-term Betterment feature, Tax-Loss Harvesting, just got less complex for married investors who file taxes jointly but keep separate taxable accounts.

When you turn on Tax-Loss Harvesting for your Betterment account, it will automatically ask you for your spouse’s Betterment account info to help coordinate and optimize your investments and prevent wash-sales. If you’re confused, this post explains tax-loss harvesting and wash sales. But, if you invest with Betterment, all you really need to know is that this feature automatically reduces your investment taxes and thereby increases your after-tax returns.

Betterment Checking offers more rewards than ever

Investing isn’t the only area Betterment is improving. Betterment’s Checking account, a fee-free option that even rebates fees at ATMs, has added cash back rewards to its Betterment Visa® Debit Card, thanks to Betterment’s partnership with Dosh. When you open a checking account with Betterment, you’ll get a Betterment Visa® Debit Card that you can use to make online or in-person purchases. It even has a contactless option for retailers that support that payment technology.

Your Betterment Visa® Debit Card comes with cash back rewards that work whether you’re shopping online or in-person . For the online option, you can either go through the Betterment “Earn Rewards” section on their cash back website or the app to find offers and redeem them. If you’re shopping in stores, use your card at one of the thousands of participating merchants and your rewards will automatically be awarded.

One thing that stands out with Betterment’s cash back program is the immediacy of the rewards. When you make a qualifying purchase, you’ll get a real-time notification alerting you that cash has been awarded. The money will then go into your checking account automatically, with no action required from you. No tracking your rewards or logging into a separate website.

Your cash back offers will even be tailored to your own preferences. The more you spend, the more Betterment gets to know your spending habits, which will be reflected in your offers. Whether you’re five miles from home or on the other side of the world, you can find nearby merchants where you’ll get cash back. When combined with ATM rebates, Betterment’s checking account definitely holds its own against what other lenders offer.

Keep in mind: Your total costs will be slightly higher

These pricing changes make Betterment more attractive to investors looking to start with smaller amounts.

However, as competition increases to appeal to increasingly fee-conscious investors, keep in mind that Betterment’s fees do not represent your total investment cost. Your total cost will also include the costs for the underlying exchange-traded funds in your Betterment portfolio.

Fortunately, these are usually very cheap. In my Betterment portfolio, for instance, the average expense ratio is .09% meaning my overall cost for the year is about 0.34%.

Summary

Robo-advisors are a good choice for people who don’t want to have to think too much about their investments. With its new fee structure, Betterment is a good choice for new or young investors without a lot of money, who will no longer have to commit to potentially onerous automatic deposits to get a good rate.

Learn more or open a Betterment account now

Read more:

• The Best Investment Accounts For New Investors
• Betterment Review: The Way Investing Should Be