My sister and I were talking about the differences between Ally’s Online Savings Account and Betterment’s Cash Reserve account so today I spent some time checking them out. Let’s start by talking about how these two services are similar.
- They both have great ratings from customers and the Better Business Bureau.
- They both manage a significant amount of money and there is no reason to believe either company is going anywhere soon.
- Neither one charges any fees on their savings accounts, which is phenomenal.
- Neither one requires a minimum balance.
- Both are FDIC insured. This is the case with nearly every checking and savings account but it’s a good box to check.
Now, some differences:
- Ally’s FDIC insurance covers $250k, whereas Betterment‘a FDIC insurance covers up to $1mm. Someday, I hope this matters for both of us 😆
- Ally is actually a bank whereas Betterment is primarily an investment service that stores their money in other banks. This is how they get the higher insurance, because they are able to spread your money across four different banks. The fact that Ally is a bank could be useful if you want to build some history with them to eventually get a car loan or mortgage through the same company.
- Ally’s Savings Account only allows six transactions per a month. Betterment has no such limits. Generally six is plenty though, as you should be treating this as a savings account.
- Betterment offers a really cool program called Two Way Sweep. They will monitor your primary checking account, determine how much money you typically need in the account (for example, a minimum of $800 and a max of $1500), and then will automatically make transfers back and forth between your accounts as needed. If you’re making more than you spend every month this will ensure you always have most of your money in the savings account leveraging that higher interest rate.
And, lastly, the interest details. Right now Betterment is offering a 1.60% variable APY. If you sign up for their Everyday Checking waitlist they’ll up that to 1.85% variable APY. Their site has more information on how their rates vary over time.
Ally is offering 1.70% variable APY on their accounts. Their rates also fluctuate, presumably for similar reasons as Betterment, but I couldn’t immediately find further details from them.
If you’re more interested in building a relationship with a traditional bank Ally is the obvious (and only) option here. They provide checking, auto loans, mortgage, and a suite of investing tools. It all looks great.
Betterment’s saving account is a relatively new option and they are just now expanding into checking. Their primary focus is all about their investment accounts and they do well at providing a hands off, robo-advisor approach. Back to savings, Betterment provides a slightly higher APY, if you take advantage of their promo, but their killer feature is definitely the Two Way Sweep. This puts Betterment just over the edge for me but that’s just because I like being hands off.
To wrap it up, there’s no bad option here. It just depends on what you want out of it. Best of luck!