In a big step for online wealth managers everywhere, Betterment is finally launching its long-awaited checking account this week.
It's the first of the so-called robo-advisors to actually make a checking account available to the public without operating as a bank. Those who signed up for the waitlist in July will start to be invited to open an Everyday Checking account on Wednesday, October 30.
People are "grumpy" with their banks, Mike Reust, Betterment's chief technology officer, tells CNBC Make It. "Why are you paying to get your money?" he asks, saying Betterment's Everyday Checking aims to change that, pairing a slick mobile app and online site with a bank account that doesn't charge any fees.
Yet once you get over the the initial excitement that Betterment is able to offer such an account, its checking features aren't too exciting at launch. It offers no interest, and the "zero fees" promise is no more competitive than accounts currently offered by other online banks and credit unions.
To offer a checking option, Betterment is working with Kansas-based nbkc bank, which will issue the checking account and the corresponding Betterment Visa Debit Card. Accounts will be FDIC-insured up to $250,000.
Betterment Everyday Checking does not have any minimum balance requirements to open an account, and there are no monthly maintenance fees. Additionally, the account does not charge overdraft fees. If you don't have enough in the account to make a purchase, your debit card will simply be declined.
Beyond declining a transaction, Betterment plans to use an existing feature called a two-way sweep, to keep users from running out of money. The tool runs an analysis on your account, learning your spending habits and will then automatically move extra cash from your Betterment savings account to the Everyday Checking, and back, when you need it.
Betterment also does not charge ATM or foreign transaction fees worldwide. That said, Visa does charge a 1% fee on foreign transactions, and the ATM operator may charge you to pull money out of your account. Betterment, however, is planning to reimburse consumers for these outside ATM fees and eventually aims to eliminate or reimburse Visa's 1% foreign transaction fee as well, Reust says.
At this time, Betterment is not offering joint checking, nor can companies, trusts or LLCs sign up for an account. Neither does Betterment's mobile app have some of the banking features Americans have come to expect: the ability to deposit checks remotely by snapping a photo, to transfer money to friends and family within minutes, to set up bill pay and to find the nearest ATM — though some of those features are in the works.
Perhaps the biggest sticking point is that Betterment's checking account offers none of the high interest rates that consumers have come to expect from these fintech companies.
For example, Robinhood announced earlier this month that it would be launching a high-yield cash account that is equipped with a debit card and offers a 2.05% APY. That account is "coming soon," according to a company spokesperson, but they would not put a more specific timeline on the planned launch for CNBC Make It.
And there are a whole host of banks and credit unions that offer competitive interest rates on checking accounts.
In fact, Betterment's partner bank, nbkc, advertises a checking account with 1.01% APY, along with all of the free features that Betterment's option includes.
Meanwhile, online Axos Bank has a Rewards Checking Account that doesn't charge fees and pays out 1.25% APY on balances up to $150,000 if you regularly use your debit card ten times a month and set up direct deposit. And California-based credit union First Tech's Dividend Rewards Checking pays up to 2.00% if you use your debit card 12 times a month and sign up for e-statements.
Betterment does have a generous promotional interest rate of up to 2.04% on its Everyday Cash Reserve account, but unlike Robinhood's offering, it can't double as a checking account because it doesn't come with a debit card or the ability to set up direct deposit, and withdrawals take one to two days.
Making the account interest free was a purposeful decision, Reust says. "We focused on other things that we felt brought our customers more value," he says, including eliminating fees and bringing traditional banking capabilities such as bill pay and, coming soon, paper checks, to customers. But Reust says he's not ruling out the option of adding interest to the account in the future.
Second, one of Betterment's goal is to get customers to keep less money in their checking accounts to begin with. In that regard, Betterment has plans to implement its two-way sweep program to also direct more of users' money into its high-interest Cash Reserve account or into investment options.
And more features are on the horizon. The company hopes to give customers the ability to digitally deposit checks through the Betterment app within the next few months, Reust says. It's also working on some additional automatic money management and financial literacy features that would help people stay informed about their financial behaviors.
There's no doubt that Betterment's checking is better than many of the big bank alternatives when it comes to fees. The average monthly service fee for no-interest checking accounts is $5.61, according to Bankrate. Banks also generally issue an average fee of $1.63 to use out-of-network ATMs, in addition to the $3.09 average fee the ATM operator charges on average.
And many banks charge far higher than those average rates. JPMorgan Chase, for example, offers a basic checking account, Total Checking, with a $12 monthly service fee unless you keep a $1,500 daily balance or opt for $500 in direct deposits. Plus, Chase charges $2.50 for any withdrawals from non-network ATMs and 2% for foreign transaction fees.
If Betterment can address some of the simple complaints most Americans have with their current bank — monthly account fees, ATM charges and mediocre mobile technology — Reust believes that people will migrate toward this new account.
"We want to delight our users," he says.
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