Wealthfront Cash Account vs. Savings Accounts, What's the difference? (2024)

Wealthfront Cash Account

The Wealthfront cash account was first featured in 2019 by Wealthfront. This account started with the benefit of idle sitting deposits with many banks, and while banks themselves earned more through these deposits, customers earned little to nothing and had tons of fees like overdraft and account maintenance fees.

To alleviate this unequal partnership, Wealthfront Cash Account was created with a better interest rate, a 5% APY annual percentage yield as of the last update in November 2023, and an FDIC insurance limit of up to $8 million through its partner banks to get customers more money through this yielding savings account.

There are three types of wealthfront cash accounts.

Individual Wealthfront Cash Account

The Individual Wealthfront Cash Account has many exciting checking features like depositing the paycheck, pay using a debit card, paying bills, saving, earning interest of 5% APY, a FDIC insurance limit of up to $8 million, 19,000 no-fee ATMs within their ATM network, and no account fees like a minimum balance fee, transfer fee, or overdraft fee. The Individual Wealthfront Cash Account can be opened. The minimum amount required is $1.

Joint Wealthfront Cash Account

This is for what we assume to be married couples, but it is not explicitly mentioned that people who are in live-in relationships are also eligible. So the eligibility criteria for this account are still undetermined explicitly. This account also has the same exciting features mentioned above but an additional increase in the FDIC insurance limit of up to $16 million through its partner banks. However, one drawback of this account is that it does not offer the checking feature that it offers for individual Wealthfront Cash Accounts.

Trust Wealthfront Cash Account

There is no clear information on which entity is eligible to be a trust based on the IRS or some other guidelines. In this case, the account will be held in the trust name, not in the individual name. Its features are more or less the same as joint account features.

With this wide variety of account features, most people are excited to open accounts with Wealthfront Cash Account. But for people who have doubts, Wealthfront is not a proper bank as the cash account is a product of Wealthfront Brokerage LLC (“Wealthfront Brokerage”), a member of FINRA/SIPC. Let's look at the comparison with normal savings account features.

Wealthfront Cash Account vs. Savings Accounts

The Wealthfornt cash account has its own benefits, and the normal bank savings account has its own benefits. So this comparison is just to highlight some of the features of the Wealthfront Cash Account in a better manner.

How do I open the Wealthfront Cash Account?

To open the Wealthfront Cash Account, users are classified into two categories.

A new client without any accounts

People who have just become clients of Wealthfront can open their account either by visiting the Wealthfront website or by visiting the app on the Google Play Store or Apple App Store and entering their details to open the account and choosing the type of account, individual joint or trust.

Existing client but does not have a cash account

People in this category can also follow the same procedure by opening an account through the same steps.

For people who had multiple individual Wealthfront Cash accounts before May 2020, they will lose the checking feature in all their accounts except for those to which you will ask to be added. There are also fees involved, even though opening does not cost a penny, but only a few transaction fees based on the type of transaction.

These show how the Wealthfront Cash Account fee structure works and how opening an account is simple.

How to calculate the Interest Rate for the Wealthfront Cash Account

To calculate the interest rate for the Wealthfront Cash Account, account holders need to know the formula.

((1+.05)^1/12-1)*12

This formula is used for converting the APY to a monthly interest rate. Now one needs to divide the account balance by this year's days (366), as this is a leap year. To get the daily interest rate for the amount you have in the account for the next year, the amount should be divided by 365 days.

An example of this calculation is that in your account, you have $20,000 with an APY of 5%. The calculation looks like this:

((1+.05)^1/12-1)*12= .048889

(.048889*20000)/366 = (977.78) / 366 = 2.6716 (rounded to four decimal places).

2.6716 * 30 = 80.148.

This monthly interest rate amount would be approximately $80.15. And the daily amount is $2.67. This is a subjective calculation, and the actual rate and amount will change based on the Fed’s interest rate changes. There are taxes involved if you are earning more than 10 dollars in interest. The users need to pay the 1099-INT IRS tax form as part of their interest income.

Benefits of Wealthfront Cash Account

The wealthfront cash account has many benefits. Some of them are:

• It is dirt cheap to open the account with a minimum of $1.
• It has three types of accounts: individual, joint, and trust.
• The individual account has more benefits, like checking features like depositing your paycheck, using a debit card, paying bills, sending checks, and earning interest.
• The account has few maintenance costs involved, as this is not given by the banking institution but rather by a broker, a member of FINRA/SIPC.
• It offers a 5% APY based on the interest rate set by the Federal Reserve’s Federal Open Market Committee (FOMC).
• It has tied up with 32 partner banks to give an increased FDIC insurance limit of $8 million for individual accounts and $16 million for joint accounts.
• It offers investment options for the in-app feature.