Cash as Betterment's Growth Engine

Betterment’s cash product turned deposits into a much better business than plain robo advising. On the robo side, Betterment charges about 0.25% of assets each year for automated ETF portfolios. On cash, it places customer balances at partner banks and keeps a spread worth about 0.40% of balances, so each new dollar of cash earns more revenue and also gives Betterment a simpler way to win customers during the high rate period.1 2 3

• The workflow is simpler on cash. A customer moves money into Betterment Reserve, Betterment sweeps it to partner banks, the banks pay Betterment a commission, and Betterment shares part of that yield back through a high APY. That means no portfolio construction, no rebalancing, and more revenue per dollar.1 3
• This mattered because robo advising had become a commodity. Betterment and Wealthfront both priced core investing at 25 basis points, while big incumbents like Vanguard and Schwab pushed similar products into the market. Higher yielding cash gave Betterment a cleaner way to grow than competing only on portfolio fees.1 2 4
• The revenue impact showed up fast. Betterment reached an estimated $153M of revenue in 2023 on roughly $39B average AUM, while Wealthfront reached an estimated $184M on roughly $43B average AUM, with both benefiting from cash accounts monetizing at about 40 basis points versus 25 on robo assets.1 2 4

Going forward, the key question is whether Betterment can use cash as the front door and then deepen those relationships into higher balance investing, retirement, and advice. If it does, cash becomes more than a rate driven boost, it becomes the lowest friction way to build a larger wealth platform.1 2