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Betterment was one of the first brokerages to automate the investment process. Simply put, these services -- known as robo-advisors -- consider your risk tolerance and investment goals to automatically invest your money in a portfolio custom-tailored for you. Robo-advisors give investors access to some of the perks of hiring a financial advisor, but for a fraction of the cost. In our Betterment review, we'll take a closer look at how the company's robo-investing service works, its pros and cons, and how to tell if this is the best robo-advisor for you.
Betterment
Betterment offers a wide array of investment services and account types, along with essential cash management features such as a high-yield cash account.
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This robo-advisor is a good fit for: Passive investors seeking a low-cost option to put their investments on cruise control. Betterment also offers great cash management features with a high APY.
Betterment is one of our favorite robo-advisors. It ranks among the best we've seen in these categories:
Keep reading for the perks that make Betterment one of our top picks.
Betterment's basic Digital investing service has either a 0.25% annual fee based on invested assets, or a flat rate of $4 per month. This is among the lowest we've come across, especially considering the other features of the platform. For a slightly higher fee of 0.40% (and a minimum investment balance of $100,000), Betterment also offers a Premium plan that gives customers unlimited access to financial advisors (all CFP® professionals) by phone.
When your portfolio's asset allocation no longer fits your target risk profile, Betterment automatically rebalances your investments. This has become a standard feature at most robo-advisors, but is still worth mentioning.
Betterment offers a cash account with a variable APY, currently 5.00%-5.50% as of April 11, 2024. It also offers a valuable no-fee checking account. Combined, these cash management accounts let investors keep all of their finances in the same place.
Betterment offers automated cryptocurrency portfolios for investors who want exposure to this asset class but don't know where to get started. Crypto portfolios charge a 1% fee plus Betterment's trading expenses.
Betterment is one of the few robo-advisors that don't require a minimum balance to provide clients with automatic tax-loss harvesting. In a nutshell, when one of your underlying investment funds declines in value, Betterment may choose to sell it at a loss and reinvest in a similar fund in order to lock in the potential tax savings that come with investment losses.
Betterment allows its customers to buy fractional shares of their underlying investment funds. This is a common feature among robo-advisors with no minimum balance, as it allows investors to put their entire deposit to work for them, instead of leaving some of their investment funds in cash.
Unlike many of its competitors, Betterment doesn't require a minimum account balance, making it a good stock broker for beginners. However, you need to deposit at least $10 to start investing. In contrast, many competitors have minimums of $500 or more.
The app's design and feature-rich capabilities mean you can manage all of your day-to-day needs on the go. Betterment's real customers agree, as evidenced by its high ratings in both the iOS and Google Play app stores. Simply put, it's one of the best investing apps from a robo-advisor.
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Betterment offers unlimited access to Certified Financial Planners™ only to its Premium members. However, Premium accounts are available only to clients with at least $100,000 in invested assets. Unlike some of its competitors, Betterment doesn't grant lower-balance customers access to a human advisor unless they pay for a financial advice package with a price tag of $299 or more.
Betterment doesn't offer custodial accounts, Coverdells, or SIMPLE IRAs. Betterment also doesn't offer self-directed investment accounts where you can buy and sell your own stocks and funds. Some brokers that offer robo-advisor platforms also offer traditional brokerage accounts, so if you want both types of accounts, you may want to look into one of them.
Like most robo-advisors, Betterment starts the investment process by asking you a series of questions about your age, investment goals, and other topics that help Betterment to assess your risk tolerance. Based on your answers, Betterment automatically builds a personalized investment portfolio, which you can modify.
Also, depending on your investment goals, Betterment can tell you how much you need to deposit initially as well as ongoing.
In addition to the standard portfolio allocation service offered by every robo-advisor, Betterment offers some services that help it stand out from the competition.
For example, instead of rebalancing client accounts once per year or quarter to maintain the desired asset allocation, Betterment rebalances whenever necessary. Betterment is one of the only robo-advisors that provides an automatic tax-loss harvesting feature with all accounts, regardless of balance.
Betterment also offers a Premium version of its robo-advisor service, available only to clients with at least $100,000 in their accounts. It comes with a higher 0.40% management fee. However, the Premium plan has unlimited access to human CFP® professionals to provide financial advice on life events, retirement, and even investments held outside Betterment.
Finally, the availability of managed cryptocurrency investment portfolios can be a big differentiator for investors who might want some exposure to digital assets.
It's important to understand the difference between investing in a brokerage account and with a robo-advisor. There are two main types of fees involved with investing through a robo-advisor. First, most robo-advisors charge an account management fee, which is a percentage of invested assets expressed on an annualized basis. Betterment charges a 0.25% management fee for its basic service or a flat fee of $4 per month for lower-balance standard accounts, which it calls Betterment Digital, or 0.40% for its Premium offering. This translates to $25 or $40, respectively, in annual investment costs, for every $10,000 in your account.
In addition, the individual investment funds Betterment selects for your portfolio have their own investment fees, known as expense ratios. Like the management fee, these are also annualized percentages of invested assets. The combination of your management fees and the expense ratios of your investment funds are collectively referred to as the "all-in" cost of a particular robo-advisor.
It's worth mentioning that most of Betterment's preferred ETFs are toward the lower end of the investment fund fee range. This is certainly a competitive cost structure in the robo-advisory industry, especially when you consider Betterment's list of account features. (Note: While Betterment's ETFs have fees that average 0.11%, that number is on the lower end of that spectrum.)
Service/Item | Betterment Cost |
---|---|
Account management fee | 0.25% or $4/month |
Investment fund fees | 0.11% average |
Premium advice | 0.40% ($100k min. balance) |
There are two types of support that clients of a robo-advisor could need: investment advice from a human being and help with technical issues. So let's take a look at how Betterment stacks up.
When it comes to access to a human financial advisor, Betterment provides unlimited access -- if you have a Premium membership. This means that you must have at least $100,000 in your account and pay the higher 0.40% management fee. To be clear, this is certainly cheaper than hiring a financial advisor on your own.
Customer support for account-related issues is available by phone and email from 9 a.m. to 6 p.m. EST on weekdays, which is good, but not the most convenient in the business. Several competing robo-advisors offer 24/7 customer support.
Wondering how Betterment stacks up to the competition? Check out our reviews:
Betterment is an automated investing platform, which is also known as a robo-advisor. The general idea is that Betterment uses your investment money and creates a portfolio that is custom-tailored to your age, risk tolerance, and investment goals.
One of the biggest downsides to using Betterment is that you can't pick your own investments, as the only option is to use the automated investing services. And while Betterment's fees are quite reasonable, there are other platforms with lower fees. However, Betterment has significantly more features than many other robo-advisors.
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Betterment disclaimers
†Betterment Cash Reserve ("Cash Reserve") is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients' funds are deposited into one or more banks ("Program Banks") where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.
Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC's Form ADV Part II.
**The annual percentage yield ("APY") on the deposit balances in Betterment Cash Reserve ("Cash Reserve") is 4.00% and represents the weighted average of the APY on deposit balances at the banks participating in Cash Reserve (the "Program Banks") and is current as of Feb. 6, 2023. This APY is variable and subject to change daily. Deposit balances are not allocated equally among the participating Program Banks. A minimum deposit of $10 is required, but there is no minimum balance required to be maintained. The APY available to a customer may be lower if that customer designates a bank or banks as ineligible to receive deposits. APY applies only to Cash Reserve and does not apply to checking accounts held through Betterment Checking. Cash Reserve and Betterment Checking are separate offerings and are not linked accounts.
For Cash Reserve (“CR”), Betterment LLC only receives compensation from our program banks; Betterment LLC and Betterment Securities do not charge fees on your CR balance.
Fidelity disclosure
Fractional share quantities can be entered out to 3 decimal places (.001) as long as the value of the order is at least $1.00. Dollar-based trades can be entered out to 2 decimal places (e.g. $250.00)
J.P Morgan Disclosure
INVESTMENT AND INSURANCE PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
Robinhood disclosure
All investments involve risk and loss of principal is possible.
Securities are offered through Robinhood Financial LLC, member FINRA/SIPC. Cryptocurrency services are offered through an account with Robinhood Crypto, LLC (NMLS ID 1702840). Robinhood Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency held through Robinhood Crypto is not FDIC insured or SIPC protected. For more information see the Robinhood Crypto Risk Disclosure.
Trades of stocks, ETFs and options are commission-free at Robinhood Financial LLC. Other fees may apply. Please see Robinhood Financial’s Fee Schedule to learn more.
Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement.
Robinhood Gold is an account offering premium services available for a $5 monthly fee. Not all investors will be eligible to trade on Margin. Margin investing involves the risk of greater investment losses. Additional interest charges may apply depending on the amount of margin used. Bigger Instant Deposits are only available if your Instant Deposits status is in good standing.