Is Betterment’s New “Smart Saver” Plan Really Smart? How to Beat It.

Disclaimer:  I have an affiliate relationship with M1 Finance and may earn a commission on referred new accounts over a certain amount. I’m not a professional financial advisor so always consult with a professional before making any investment decisions to make sure you do what is right for you.

Betterment just rolled out a new “Smart Saver” plan and are stating “Our ultra-low-risk investing solution could earn you a 1.78%* annual return, after fees”. It looks like they are trying to step up and provide a savings vehicle to investors and the financially prudent looking for a home for their emergency funds.  A 1.78% return doesn’t look too bad for a very safe investment. Right?

Aug 2018 Savings Rates
Nerdwallet screenshot of savings rates as of 08-18-2018. Does Betterment have an advantage with their savings plan?

Well,  a quick trip to shows that that the going rate for many FDIC insured savings accounts is hovering around 1.75% to 1.85%. So if you can get an FDIC guaranteed 1.85% return for savings, is it “smart” to invest in markets without a guarantee that won’t yield much better? I’m open to hearing the reasoning, but I can’t see why it would be. It’s possible the smart saver plan could outperform a savings account, but of course, it could also underperform.

According to this blog post on Betterment’s blog, their new Smart Saver plan contains two conservative ETF funds. They chose ishares funds, NEAR and SHV. See recent Yahoo quotes as of August 18th, 2018. Overall this plan isn’t a poor approach to a conservative portfolio. But there’s just one problem.

It’s the Management Fees Dummy

While this idea of creating a conservative portfolio with two exchange-traded funds seems like a good idea, my thinking is that Betterment’s .25% management fee is going to eat too heavily into your already modest return.

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When you’re talking a safe, conservative investment, you’re just not typically dealing with a return of 7 or 8 percent.  There’s not enough of a profit margin to afford to lose even a fraction of a percentage to fees.

A Better Way

A smarter solution?   Do it yourself.   Invest the funds in Vanguard and manage it yourself to avoid the advisor fee.  Don’t like allocating shares every time you invest or sell shares?    Consider doing it with M1 Finance where you can set up this same portfolio but and have it managed without any management fee.  That seems smart to me.

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