Vanguard vs. Betterment: Which Broker Is Right for You?

If you're a newer investor -- or even if you're a seasoned veteran -- choosing the best brokerage for you can seem intimidating. And with many great options on the market, it's certainly understandable.

Two brokers that can be great options, especially for investors who like to take some degree of a passive approach to their portfolios, are Vanguard and Betterment. Both can be excellent choices. But, there are several big differences between the two. In this Vanguard vs. Betterment comparison, we'll give an overview of each brokerage. We'll discuss the similarities and key differences. And finally, we'll hopefully help decide if one of them could be a good fit for you.

We'll get into their investment products more in the next section. The general idea is that Vanguard is more of a full-featured broker. Betterment is purely designed to be a robo-advisor and cash management solution; it also offers crypto investments and a checking account.

Because of this, as you'll see in the chart below, most of the standard brokerage fees (like trading commissions) don't apply to Betterment. You can't buy individual stocks, options, or mutual funds. So in this sense, there's not an apples-to-apples comparison to be made.

Vanguard's brokerage fee structure isn't necessarily expensive. Its options commissions are on the higher end of the spectrum, but not by much. On the other hand, its $20 standard mutual fund commissions are on the lower end. There are thousands of funds available for no commission. This includes Vanguard's own low-cost index mutual funds, which might not appear on every broker's no-transaction-fee (NTF) list.

Betterment charges a $75 account transfer fee to move your funds or investments to a different institution (but there is no fee to move funds to your linked checking account). This is in line with the industry standard. Vanguard Brokerage Services charges a $25 annual account fee, but you can avoid this fee by signing up for electronic delivery of statements or meeting a few other requirements.

On the robo-advisor side, both are rather competitive. The Vanguard Digital Advisor® robo-advisor service requires minimum assets of $3,000 and charges an annual management fee ranging from 0.15%-0.20% depending on which investments you choose.

However, that doesn't necessarily mean Betterment's 0.25% fee is truly more "expensive." It has several key features that Vanguard's robo-advisor service doesn't, such as no minimum balance, tax-loss harvesting strategies, and an integrated interest-bearing cash management account. And Betterment's 0.40% fee premium service for high-balance customers ($100,000 minimum) offers access to on-demand support from a Certified Financial Planner™.

Vanguard offers stocks, ETFs, options, bonds, and thousands of mutual funds to choose from. Betterment offers the ability to invest in cryptocurrencies. Neither broker offers futures or foreign exchange trading, so if either of those are a key part of your investment strategy, you may want to look elsewhere.

Both Vanguard and Betterment allow investors to buy fractional shares of the underlying funds, allowing users to put their entire deposit amount to work. Vanguard allows customers to create their own portfolios, choose funds, and buy individual stocks -- you don't have to sign up for Vanguard's robo-advisor service. Betterment is purely a robo-advisor, and its platform automatically invests clients' money into an appropriate portfolio of ETFs.

First of all, for the majority of investors, both of these brokers have all of the account types needed. They both allow investors to open joint brokerage accounts (this isn't universal, especially in the robo-advisor space).

Both offer traditional and Roth IRA accounts for retirement investing. Both offer SEP-IRA accounts for self-employed retirement savings. However, Vanguard offers a few other options in this category.

One area Vanguard shines is if you're planning to invest on behalf of a minor. The platform offers college savings accounts and more generic custodial accounts like an UGMA or UTMA. Both Betterment and Vanguard offer high-yield cash accounts -- the Vanguard Cash Plus account offers a slightly lower APY than Betterment's Cash Reserve right now, but both are competitive. Betterment also offers a full-featured checking account product.

Neither of these firms have the most high-tech trading platforms and mobile apps on the market. But they'll meet the needs of most investors.

Vanguard's web-based trading platform and mobile app are designed to allow long-term investors to buy and sell investments. It doesn't have fancy trading tools, or a high-powered trading platform designed for day traders and options investors like some of its rivals do. It does, however, offer lots of research and educational tools. These can be especially valuable to investors looking for buy-and-hold investments. If you choose the Vanguard Digital Advisor® robo-advisory product, it also offers an easy-to-understand interface to manage it.

Betterment's trading platform and mobile app allow users to manage their robo-advisor assets, as well as their Betterment checking and savings accounts in one user-friendly place. It is consistently one of the highest-rated investment apps in both the App Store (4.7 out of 5) and Google Play Store (4.6 out of 5).

To be perfectly clear, if you don't want to use a robo-advisory service, Vanguard is the only broker here that makes sense. Vanguard shines for long-term investors, especially those who plan to incorporate mutual funds into their strategy.

For robo-advisors, there's not a clear winner. Vanguard has a slightly lower cost (although we wouldn't call either of them expensive). Betterment and Vanguard offer tax-loss harvesting capability. This can translate into major tax savings for high-balance accounts. Both offer high-yield savings accounts to manage your cash.

Vanguard offers a few more types of retirement savings accounts, which could make it a better choice for small business owners. Betterment offers a no-fee checking account that could make it better for people who want to keep all of their investments and other financial accounts in the same place.

The bottom line is that these are both solid companies that are designed to help facilitate long-term investing at a minimum of expense to the investor. It's just a question of which one has the features that best meet your needs.