Betterment jumps into savings war with 2.69% APY.

Betterment, the investment robo-advisor, is getting into the banking business.

Starting Tuesday, it's offering a FDIC-protected savings-type account with a 2.69% yield  – compared with the national average of 0.1% on savings accounts  – on the entire balance. The company also plans to roll out a no-fee checking account later this year and joins a growing number of fintechs offering bank services. 

Dubbed “Betterment Everyday Savings,” the vehicle is not technically a savings account, but rather a demand deposit account. Funds that are deposited into the account are then placed with multiple partner banks.

The structure allows Betterment to achieve the high yield and increase the amount of FDIC insurance on the funds, says Betterment CEO Jon Stein. Typically, you’re insured up to $250,000, but funds in Betterment’s savings vehicle is insured up to $1 million.

“It’s been a long time coming for us. We were talking about adding savings and checking products even in the beginning,” Stein says. “We saw an opportunity to help our customers make the most of their money.”

More details

Unlike savings accounts which allow a maximum of six withdrawals per month, there are unlimited withdrawals available in Better Everyday Savings. There is also no minimum balance.

The 2.69% rate is a promotional offer for those who sign up for Betterment’s checking account waitlist and applies to funds deposited in 2019. Without the promotion, the rate, which is variable, is 2.43%.

Betterment also plans to introduce its Betterment Everyday Checking, which feature no account fees, overdraft fees, minimum balances or monthly maintenance fees. The account will be FDIC-insured up to $250,000, and betterment

Jumping on the bandwagon

Betterment is certainly not the first non-bank to butt into the banking business. Earlier this year, Wealthfront – another robo-advisor – debuted a savings-type account employing a similar structure to the one Betterment is using.

In December, the stock-trading app Robinhood, announced a savings-type account with a 3% rate. It quickly walked it back when questions were raised about whether the funds were insured. The company reportedly is looking to relaunch the account soon.

Other fintechs have been upping the ante on their savings products, hoping to attract deposits from bigger banks and grow their customer base. Empower, a budgeting app, last year unveiled its own checking and savings accounts.

Many other nontraditional financial companies - such as Stash, Varo and Chime – also are providing banking service, often aimed at younger adults who are tired of account fees and low savings yields from the big banks.

“We have seen a few entrants, and one factor driving that is enabling technology,” Stein says. “The rails that exist today are better than we launched 10 years ago. It was a lot harder to get bank off the ground then.”