Wealthfront now offers 2.51% APY

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div
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Wealthfront now offers 2.51% APY

Post by div » Tue May 28, 2019 1:53 pm


primetime5
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Re: Wealthfront now offers 2.51% APY

Post by primetime5 » Tue May 28, 2019 5:29 pm

Very nice. Thanks!

Benosis
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Re: Wealthfront now offers 2.51% APY

Post by Benosis » Tue May 28, 2019 6:15 pm

Tempting..

dru808
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Re: Wealthfront now offers 2.51% APY

Post by dru808 » Tue May 28, 2019 7:31 pm

That is great đź‘Ť, thank you

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walletless
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Re: Wealthfront now offers 2.51% APY

Post by walletless » Tue May 28, 2019 7:33 pm

Finally, something to best VMMXX!

sarabayo
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Re: Wealthfront now offers 2.51% APY

Post by sarabayo » Tue May 28, 2019 8:09 pm

walletless wrote: ↑
Tue May 28, 2019 7:33 pm
Finally, something to best VMMXX!
Doesn't beat VMFXX yet, though (for me anyway) -- in the 24% federal and 9.3% CA state brackets, it has a tax equivalent yield of 2.58%. And VUSXX is better still, at 2.67% tax-equivalent yield. :)

boglenomics
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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Tue May 28, 2019 8:11 pm

The FDIC to $1M claim seems a bit strange. They are not a national bank association so I assume they then are partnering with multiple banks?

Are they opening an account on behalf of each client instead of as an institution to ensure they stay under the true $250K threshold per institution? What happens if Wealthfront were to become insolvent? Does SIPC step in to help recover those funds or FDIC?

After the Robinhood fiasco I assume they made sure to sort this all out. I also don't understand why banks would give Wealthfront a better rate than clients. Why isn't Marcus, Ally, Discover, etc... 2.51%?

sarabayo
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Re: Wealthfront now offers 2.51% APY

Post by sarabayo » Tue May 28, 2019 8:14 pm

boglenomics wrote: ↑
Tue May 28, 2019 8:11 pm
The FDIC to $1M claim seems a bit strange. They are not a national bank association so I assume they then are partnering with multiple banks?

Are they opening an account on behalf of each client instead of as an institution to ensure they stay under the true $250K threshold per institution? What happens if Wealthfront were to become insolvent? Does SIPC step in to help recover those funds or FDIC?
They automatically open bank accounts at various partner banks under the client's name, yes. Here is their FAQ about it.

Fidelity has done the same thing with their Cash Management Accounts for a while now -- Fidelity actually creates five accounts for you, for a total of $1.25M insured under FDIC.

Not sure about what happens if Wealthfront goes under.

boglenomics
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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Tue May 28, 2019 8:25 pm

Interesting, thanks for the info!

Having a non-FDIC middleman between me and my funds is just as risky as holding VMMXX or any non-FDIC money in my thinking.

Being a former Wealthfront client (leaving after the risk parity scandal & discovering BH) and knowing they have not become profitable I'll stick with my FDIC high yield and Vanguard options.

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walletless
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Re: Wealthfront now offers 2.51% APY

Post by walletless » Tue May 28, 2019 11:58 pm

sarabayo wrote: ↑
Tue May 28, 2019 8:09 pm
walletless wrote: ↑
Tue May 28, 2019 7:33 pm
Finally, something to best VMMXX!
Doesn't beat VMFXX yet, though (for me anyway) -- in the 24% federal and 9.3% CA state brackets, it has a tax equivalent yield of 2.58%. And VUSXX is better still, at 2.67% tax-equivalent yield. :)
Isn't VMMXX yields no different from interest (from a tax perspective)? What is the tax advantage of holding VMMXX here?

sarabayo
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Re: Wealthfront now offers 2.51% APY

Post by sarabayo » Wed May 29, 2019 12:19 am

walletless wrote: ↑
Tue May 28, 2019 11:58 pm
sarabayo wrote: ↑
Tue May 28, 2019 8:09 pm
walletless wrote: ↑
Tue May 28, 2019 7:33 pm
Finally, something to best VMMXX!
Doesn't beat VMFXX yet, though (for me anyway) -- in the 24% federal and 9.3% CA state brackets, it has a tax equivalent yield of 2.58%. And VUSXX is better still, at 2.67% tax-equivalent yield. :)
Isn't VMMXX yields no different from interest (from a tax perspective)? What is the tax advantage of holding VMMXX here?
What I'm saying is that on a tax-equivalent basis, Wealthfront's 2.51% APY doesn't beat VMFXX's 2.58% and VUSXX's 2.67% (those numbers are based on my tax brackets). However, it does beat VMMXX's 2.41%, as you pointed out.

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walletless
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Re: Wealthfront now offers 2.51% APY

Post by walletless » Wed May 29, 2019 12:56 am

sarabayo wrote: ↑
Wed May 29, 2019 12:19 am
walletless wrote: ↑
Tue May 28, 2019 11:58 pm
sarabayo wrote: ↑
Tue May 28, 2019 8:09 pm
walletless wrote: ↑
Tue May 28, 2019 7:33 pm
Finally, something to best VMMXX!
Doesn't beat VMFXX yet, though (for me anyway) -- in the 24% federal and 9.3% CA state brackets, it has a tax equivalent yield of 2.58%. And VUSXX is better still, at 2.67% tax-equivalent yield. :)
Isn't VMMXX yields no different from interest (from a tax perspective)? What is the tax advantage of holding VMMXX here?
What I'm saying is that on a tax-equivalent basis, Wealthfront's 2.51% APY doesn't beat VMFXX's 2.58% and VUSXX's 2.67% (those numbers are based on my tax brackets). However, it does beat VMMXX's 2.41%, as you pointed out.
I'm still lost why VMFXX has a higher tax-effective yield for you. VMFXX is taxed at both federal and state for California. Are you sure you're not thinking about VMSXX?
https://thefinancebuff.com/which-vangua ... -fund.html

isira
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Re: Wealthfront now offers 2.51% APY

Post by isira » Wed May 29, 2019 1:21 am

walletless wrote: ↑
Wed May 29, 2019 12:56 am
I'm still lost why VMFXX has a higher tax-effective yield for you. VMFXX is taxed at both federal and state for California. Are you sure you're not thinking about VMSXX?
https://thefinancebuff.com/which-vangua ... -fund.html
A portion of VMFXX is tax free in California because it meets the required threshold of having over 50% of assets invested in US government obligations.
https://personal.vanguard.com/pdf/USGO_012019.pdf

sarabayo
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Re: Wealthfront now offers 2.51% APY

Post by sarabayo » Wed May 29, 2019 2:36 am

isira wrote: ↑
Wed May 29, 2019 1:21 am
walletless wrote: ↑
Wed May 29, 2019 12:56 am
I'm still lost why VMFXX has a higher tax-effective yield for you. VMFXX is taxed at both federal and state for California. Are you sure you're not thinking about VMSXX?
https://thefinancebuff.com/which-vangua ... -fund.html
A portion of VMFXX is tax free in California because it meets the required threshold of having over 50% of assets invested in US government obligations.
https://personal.vanguard.com/pdf/USGO_012019.pdf
Yes, exactly - to be specific, its dividends are 77.79% untaxed by California, which in my tax brackets works out to a tax rate of 0.24 + 0.2221*0.093 ~= 26.07%, compared to 33.3% for VMMXX.

That 77.79% number has quite improved (increased) even just in the last few years, so I wouldn't be surprised if that TFB article (which was written in 2007) is due for an update.

esteen
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Re: Wealthfront now offers 2.51% APY

Post by esteen » Wed May 29, 2019 1:18 pm

boglenomics wrote: ↑
Tue May 28, 2019 8:25 pm
Having a non-FDIC middleman between me and my funds is just as risky as holding VMMXX or any non-FDIC money in my thinking.
This is what I'm worried about. I'm in the process of moving a good chunk of my emergency fund from a (virtually) non interest bearing account to a high-yield savings account. Wealthfront is technically the highest, but CitiBank (2.36%) and Ally (2.20%), among others, are almost as high and aren't middlemen.

Does anyone have a good idea on the availability of the money of Wealthfront were to go under? Is there a "gold standard" high yield savings account that BH forum-goers typically recommend?

Thanks!

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walletless
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Re: Wealthfront now offers 2.51% APY

Post by walletless » Wed May 29, 2019 1:26 pm

The only accounts I have at Fidelity are retirement accounts (401K, IRA). The investment and cash Management accounts only have couple thousand dollars in core/sweep, no other investments (they're all in VG which will close my cm equivalent account). Hopefully that shouldn't impact from lack of fdic insurance beyond the few thousand I have.

boglenomics
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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Wed May 29, 2019 7:22 pm

In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.

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walletless
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Re: Wealthfront now offers 2.51% APY

Post by walletless » Wed May 29, 2019 7:35 pm

isira wrote: ↑
Wed May 29, 2019 1:21 am
walletless wrote: ↑
Wed May 29, 2019 12:56 am
I'm still lost why VMFXX has a higher tax-effective yield for you. VMFXX is taxed at both federal and state for California. Are you sure you're not thinking about VMSXX?
https://thefinancebuff.com/which-vangua ... -fund.html
A portion of VMFXX is tax free in California because it meets the required threshold of having over 50% of assets invested in US government obligations.
https://personal.vanguard.com/pdf/USGO_012019.pdf
Ah, got it. Thanks for the explanation!

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travelogue
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Re: Wealthfront now offers 2.51% APY

Post by travelogue » Tue Jun 11, 2019 5:12 pm

I moved some funds in to try it out as I had a Capital One money market account that dropped below the $10k threshold for 2% APR. Nice that there are unlimited withdrawals (vs 6 per month for savings and money market deposit accounts). One bummer is they don’t have account numbers to accept direct deposit yet, so automatic savings requires a two-step shuffle. I also find the Wealthfront interface overkill for cash management, but it was interesting to see the platform’s analysis of my assets and goals.

I may end up just moving the cash in this savings bucket to a Vanguard money market fund (which is where I currently park my e-fund).

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travelogue
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Re: Wealthfront now offers 2.51% APY

Post by travelogue » Tue Jun 11, 2019 5:18 pm

esteen wrote: ↑
Wed May 29, 2019 1:18 pm
Is there a "gold standard" high yield savings account that BH forum-goers typically recommend?
A lot of folks recommend Ally. I have accounts there and it’s fine. (I’ve used Capital One 360 as well, but rates are lagging.)

Lots of support for using Vanguard’s money market accounts instead of a bank. VMFXX (my choice due to sweep status and tax benefits) or VMMXX. VUSXX if you meet the minimum investment.

lukestuckenhymer
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Re: Wealthfront now offers 2.51% APY

Post by lukestuckenhymer » Thu Jul 11, 2019 7:00 pm

boglenomics wrote: ↑
Wed May 29, 2019 7:22 pm
In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.
This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.

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SlowMovingInvestor
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Re: Wealthfront now offers 2.51% APY

Post by SlowMovingInvestor » Thu Jul 11, 2019 9:43 pm

With other online banks like Marcus and Purepoint dropping rates, how long will Wealthfront keep it's 2.57% rate ?

H-Town
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Re: Wealthfront now offers 2.51% APY

Post by H-Town » Thu Jul 11, 2019 9:48 pm

SlowMovingInvestor wrote: ↑
Thu Jul 11, 2019 9:43 pm
With other online banks like Marcus and Purepoint dropping rates, how long will Wealthfront keep it's 2.57% rate ?
I enjoy it while it lasts.

mpsz
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Re: Wealthfront now offers 2.51% APY

Post by mpsz » Thu Jul 11, 2019 10:00 pm

H-Town wrote: ↑
Thu Jul 11, 2019 9:48 pm
SlowMovingInvestor wrote: ↑
Thu Jul 11, 2019 9:43 pm
With other online banks like Marcus and Purepoint dropping rates, how long will Wealthfront keep it's 2.57% rate ?
I enjoy it while it lasts.
+1. I think Wealthfront will keep rates higher than competitors for the next few months since they're promoting this new product. IMO raising the rate from 2.51% to 2.57% in the face of others cutting just days from that announcements suggests that's the case. But, I'm treating this and SoFi as promos that will end some day soon, and have an Alliant HYSA account on standby.

protagonist
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Re: Wealthfront now offers 2.51% APY

Post by protagonist » Thu Jul 11, 2019 10:18 pm

A cursory search reveals 4 banks offering 2.50% on money market accounts and several coming close. https://www.depositaccounts.com/moneymarket/
I would prefer to deal with a bank directly than deal through a middleman.

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SlowMovingInvestor
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Re: Wealthfront now offers 2.51% APY

Post by SlowMovingInvestor » Sat Jul 13, 2019 2:55 pm

protagonist wrote: ↑
Thu Jul 11, 2019 10:18 pm
A cursory search reveals 4 banks offering 2.50% on money market accounts and several coming close. https://www.depositaccounts.com/moneymarket/
I would prefer to deal with a bank directly than deal through a middleman.
With the big online banks (Ally, Marcus, Purepoint) dropping rates, I suspect many of these smaller banks will do the same except under limited circumstances.

Whereas Wealthfront might see it as a marketing expense so they might keep it going for a while. Although I wonder if it's possible to find out from one's Wealthfront statement, how much interest the banks are actually paying and how much Wealthfront is dipping into it's own reserves to fund.

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indexfundfan
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Re: Wealthfront now offers 2.51% APY

Post by indexfundfan » Sat Jul 13, 2019 4:46 pm

SlowMovingInvestor wrote: ↑
Sat Jul 13, 2019 2:55 pm
protagonist wrote: ↑
Thu Jul 11, 2019 10:18 pm
A cursory search reveals 4 banks offering 2.50% on money market accounts and several coming close. https://www.depositaccounts.com/moneymarket/
I would prefer to deal with a bank directly than deal through a middleman.
With the big online banks (Ally, Marcus, Purepoint) dropping rates, I suspect many of these smaller banks will do the same except under limited circumstances.

Whereas Wealthfront might see it as a marketing expense so they might keep it going for a while. Although I wonder if it's possible to find out from one's Wealthfront statement, how much interest the banks are actually paying and how much Wealthfront is dipping into it's own reserves to fund.
Their CEO says they are not allowed to pay more than what they earn (if you can believe him)

https://blog.wealthfront.com/why-did-al ... wer-their/
My signature has been deleted.

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jeffyscott
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Re: Wealthfront now offers 2.51% APY

Post by jeffyscott » Sat Jul 13, 2019 9:07 pm

protagonist wrote: ↑
Thu Jul 11, 2019 10:18 pm
A cursory search reveals 4 banks offering 2.50% on money market accounts and several coming close. https://www.depositaccounts.com/moneymarket/
I would prefer to deal with a bank directly than deal through a middleman.
Not counting the step tracker one, there are 4 additional banks paying 2.5%, that are listed under savings accounts: https://www.depositaccounts.com/savings/
Time is your friend; impulse is your enemy. - John C. Bogle

H-Town
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Re: Wealthfront now offers 2.51% APY

Post by H-Town » Sat Jul 13, 2019 9:10 pm

SlowMovingInvestor wrote: ↑
Sat Jul 13, 2019 2:55 pm
protagonist wrote: ↑
Thu Jul 11, 2019 10:18 pm
A cursory search reveals 4 banks offering 2.50% on money market accounts and several coming close. https://www.depositaccounts.com/moneymarket/
I would prefer to deal with a bank directly than deal through a middleman.
With the big online banks (Ally, Marcus, Purepoint) dropping rates, I suspect many of these smaller banks will do the same except under limited circumstances.

Whereas Wealthfront might see it as a marketing expense so they might keep it going for a while. Although I wonder if it's possible to find out from one's Wealthfront statement, how much interest the banks are actually paying and how much Wealthfront is dipping into it's own reserves to fund.
I received a statement last month. It's full amount of interest from just one affiliate bank. It's pretty straightforward.

HEDGEFUNDIE
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Re: Wealthfront now offers 2.51% APY

Post by HEDGEFUNDIE » Sat Jul 13, 2019 10:05 pm

Awesome, I just signed up for an account and will be shifting all my cash to them.

boglenomics
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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 5:20 pm

lukestuckenhymer wrote: ↑
Thu Jul 11, 2019 7:00 pm
boglenomics wrote: ↑
Wed May 29, 2019 7:22 pm
In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.
This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.
It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.

HEDGEFUNDIE
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Re: Wealthfront now offers 2.51% APY

Post by HEDGEFUNDIE » Sun Jul 14, 2019 6:52 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 5:20 pm
lukestuckenhymer wrote: ↑
Thu Jul 11, 2019 7:00 pm
boglenomics wrote: ↑
Wed May 29, 2019 7:22 pm
In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.
This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.
It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.
Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.

boglenomics
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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 7:02 pm

HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 6:52 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 5:20 pm
lukestuckenhymer wrote: ↑
Thu Jul 11, 2019 7:00 pm
boglenomics wrote: ↑
Wed May 29, 2019 7:22 pm
In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.
This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.
It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.
Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.

HEDGEFUNDIE
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Re: Wealthfront now offers 2.51% APY

Post by HEDGEFUNDIE » Sun Jul 14, 2019 7:09 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 6:52 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 5:20 pm
lukestuckenhymer wrote: ↑
Thu Jul 11, 2019 7:00 pm
boglenomics wrote: ↑
Wed May 29, 2019 7:22 pm
In the non-FDIC world of money there's also a big difference between the players as well.

Wealthfront has a $11.4 billion AUM and has not made a profit or been able to run at cost vs. the multi-trillion AUM of Schwab, Vanguard, and Fidelity who are also covering the cost of business operations successfully. I would trust the "big three" much more.

Having such a small firm that is non-FDIC and burning cash stand between you and your FDIC money just seems like a risk that is hard to assess and potentially high.
This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.
It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.
Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
In your scenario Wealthfront goes out of business and also somehow loses all records of its customers’ account balances? Can you point to an example of where the latter has happened, other than an outright fraud scenario?

“Going out of business” just means it can’t afford to meet its ongoing obligations. That has nothing to do with its electronic records.

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Re: Wealthfront now offers 2.51% APY

Post by drk » Sun Jul 14, 2019 7:16 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
Yes, you are missing that that is not how it works. The funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit. This isn't a novel set-up. Fidelity does the same thing with its FDIC-insured sweep accounts.

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 7:23 pm

HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 7:09 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 6:52 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 5:20 pm
lukestuckenhymer wrote: ↑
Thu Jul 11, 2019 7:00 pm


This is the one thing that keeps me from moving my money. 2.57% looks tempting, especially now that VMMXX's yield is dropping significantly, but do I believe in Wealthfront's long term viability? No.
I wouldn't feel comfortable putting my money there (nor Robinhood, nor Personal Capital while we're at it). Putting your emergency fund in the hands of a precarious tech startup is just not worth the risk for a marginally higher yield.
It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.
Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
In your scenario Wealthfront goes out of business and also somehow loses all records of its customers’ account balances? Can you point to an example of where the latter has happened, other than an outright fraud scenario?

“Going out of business” just means it can’t afford to meet its ongoing obligations. That has nothing to do with its electronic records.
In the out of business scenario there is nobody to service the distribution of the assets besides the SIPC since the company is theoretically out of money and has no or not enough employees to manage operations.

The point I'm trying to make is by implying the money is FDIC insured and just as safe as holding money directly with an FDIC institution or the Treasury is disingenuous. The FDIC makes a point to make sure everyone has their funds returned in a few business days but since in this scenario they have no reason to get involved it is up to the SIPC to return those funds.

Is this whole scenario unlikely, probably. But from the last provided information they are still not a profitable business. Why take the risk for a few basis points when larger profitable competitors have good money market products and there's plenty of similar yielding products with direct federal backing tied to the institution.

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 7:32 pm

drk wrote: ↑
Sun Jul 14, 2019 7:16 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
Yes, you are missing that that is not how it works. The funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit. This isn't a novel set-up. Fidelity does the same thing with its FDIC-insured sweep accounts.
Thanks for clarifying, this is great info. Knowing the banks have the customer names on record as well changes my opinion.

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Re: Wealthfront now offers 2.51% APY

Post by drk » Sun Jul 14, 2019 7:36 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 7:32 pm
Thanks for clarifying, this is great info. Knowing the banks have the customer names on record as well changes my opinion.
Now the vinegar to make you skeptical again. :D

As Wealthfront alludes[1], that FDIC insurance only applies once the money is deposited with the partner bank. Until that point, your concerns apply.

[1]: "Once your deposit is at a bank, your cash balance will be eligible for FDIC insurance coverage [...]"

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Re: Wealthfront now offers 2.51% APY

Post by nisiprius » Sun Jul 14, 2019 7:39 pm

drk wrote: ↑
Sun Jul 14, 2019 7:16 pm
...[In a Wealthfront account] the funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit...
If you have one of these accounts, maybe you can tell me. Can you, the individual, verify this? How do you determine the bank, and the account number, of your personal holding? How do you contact the bank and verify that your money is there, and that the bank knows it belongs to you personally--without needing to trust the accuracy of Wealthfront's statements?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 7:48 pm

drk wrote: ↑
Sun Jul 14, 2019 7:36 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:32 pm
Thanks for clarifying, this is great info. Knowing the banks have the customer names on record as well changes my opinion.
Now the vinegar to make you skeptical again. :D

As Wealthfront alludes[1], that FDIC insurance only applies once the money is deposited with the partner bank. Until that point, your concerns apply.

[1]: "Once your deposit is at a bank, your cash balance will be eligible for FDIC insurance coverage [...]"
Odd as it may seem that actually doesn't worry me too much. Just seems like a technical limitation in how fast they can transfer and get the funds properly allocated.

They'll get a pass from me on that one. :beer

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Re: Wealthfront now offers 2.51% APY

Post by drk » Sun Jul 14, 2019 7:50 pm

nisiprius wrote: ↑
Sun Jul 14, 2019 7:39 pm
drk wrote: ↑
Sun Jul 14, 2019 7:16 pm
...[In a Wealthfront account] the funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit...
If you have one of these accounts, maybe you can tell me. Can you, the individual, verify this? How do you determine the bank, and the account number, of your personal holding? How do you contact the bank and verify that your money is there, and that the bank knows it belongs to you personally--without needing to trust the accuracy of Wealthfront's statements?
To satisfy my curiosity, I have about $10 in one of these accounts. The statement lists East West Bank as the bank and notes "FDIC Insured Deposit. Not Covered by SIPC." Unfortunately, there is no account number listed, and East West Bank's automated phone tree doesn't let me access my account information without one. If I remember tomorrow, I'll try again when they're in the office.

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 7:53 pm

nisiprius wrote: ↑
Sun Jul 14, 2019 7:39 pm
drk wrote: ↑
Sun Jul 14, 2019 7:16 pm
...[In a Wealthfront account] the funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit...
If you have one of these accounts, maybe you can tell me. Can you, the individual, verify this? How do you determine the bank, and the account number, of your personal holding? How do you contact the bank and verify that your money is there, and that the bank knows it belongs to you personally--without needing to trust the accuracy of Wealthfront's statements?
After drk shared that info with me I found the fine print here: https://www.wealthfront.com/static/docu ... losure.pdf

They don't explicitly say if you can do that from what I've read of it so far. The Evidence of Ownership section seems to provide the most clarity on that topic but it is a bit vague.

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Re: Wealthfront now offers 2.51% APY

Post by SlowMovingInvestor » Sun Jul 14, 2019 7:59 pm

From their description:

Until the sweep occurs, your Cash Balance will remain uninvested Free Credit Balances in your Cash Account. Because Wealthfront Brokerage is a member of the Securities Investor Protection Corporation (“SIPC”), our customers are protected up to applicable SIPC limits if Wealthfront Brokerage were to go out of business and there were customer securities or funds unaccounted for.

So there is SIPC protection if the funds aren't deposited with a bank, IIRC.

Does ACH out of Wealthfront take more time than with a regular bank account ?

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 8:13 pm

SlowMovingInvestor wrote: ↑
Sun Jul 14, 2019 7:59 pm
From their description:

Until the sweep occurs, your Cash Balance will remain uninvested Free Credit Balances in your Cash Account. Because Wealthfront Brokerage is a member of the Securities Investor Protection Corporation (“SIPC”), our customers are protected up to applicable SIPC limits if Wealthfront Brokerage were to go out of business and there were customer securities or funds unaccounted for.

So there is SIPC protection if the funds aren't deposited with a bank, IIRC.

Does ACH out of Wealthfront take more time than with a regular bank account ?
In their disclosure they claim "within 1 to 3 business day" it will get to the FDIC institution.

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 8:21 pm

drk wrote: ↑
Sun Jul 14, 2019 7:50 pm
nisiprius wrote: ↑
Sun Jul 14, 2019 7:39 pm
drk wrote: ↑
Sun Jul 14, 2019 7:16 pm
...[In a Wealthfront account] the funds are held in FDIC-insured accounts in the actual customer's name. This is why it's important to know which banks they partner with: your FDIC insurance only extends to $250k per individual per institution, so you need to manage that limit...
If you have one of these accounts, maybe you can tell me. Can you, the individual, verify this? How do you determine the bank, and the account number, of your personal holding? How do you contact the bank and verify that your money is there, and that the bank knows it belongs to you personally--without needing to trust the accuracy of Wealthfront's statements?
To satisfy my curiosity, I have about $10 in one of these accounts. The statement lists East West Bank as the bank and notes "FDIC Insured Deposit. Not Covered by SIPC." Unfortunately, there is no account number listed, and East West Bank's automated phone tree doesn't let me access my account information without one. If I remember tomorrow, I'll try again when they're in the office.
If you do end up calling let us know the outcome!

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Re: Wealthfront now offers 2.51% APY

Post by SlowMovingInvestor » Sun Jul 14, 2019 8:22 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 8:13 pm
SlowMovingInvestor wrote: ↑
Sun Jul 14, 2019 7:59 pm
From their description:

Until the sweep occurs, your Cash Balance will remain uninvested Free Credit Balances in your Cash Account. Because Wealthfront Brokerage is a member of the Securities Investor Protection Corporation (“SIPC”), our customers are protected up to applicable SIPC limits if Wealthfront Brokerage were to go out of business and there were customer securities or funds unaccounted for.

So there is SIPC protection if the funds aren't deposited with a bank, IIRC.

Does ACH out of Wealthfront take more time than with a regular bank account ?
In their disclosure they claim "within 1 to 3 business day" it will get to the FDIC institution.
I was actually asking how long it would take to transfer money out of your Wealthfront Savings account to an outside bank where you have an individual account. Does it first come back from the FDIC institution to Wealthfront, then go to the outside bank or does it go directly from the FDIC institution to the outside bank ? If the latter, your risk is lower.

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Re: Wealthfront now offers 2.51% APY

Post by HEDGEFUNDIE » Sun Jul 14, 2019 8:28 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 7:23 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 7:09 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 6:52 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 5:20 pm


It really blows my mind to see how many people have taken up on their offer. Obviously I hope it works out but to call or imply this is "risk free" seems disingenuous. In my state I get treasury bills at ~2.3% with state and local tax benefits considered. I assume most people have a similar yield potential if not more in states like CA or NY. The .27% diff is negligible and the direct federal backing has at least that as a value premium in my thinking.

I have also been screwed by both Robinhood and Wealthfront in the past so maybe I just have a disdain for the startup fintech companies. Robinhood restated my 1099 after I filed and very close to the tax deadline. Wealthfront tried to quietly move me and all of their clients over to a private risk parity fund. Luckily some journalists caught wind of it and blew the whistle forcing them to go back on that decision. That was before I found Jack Bogle and I now have all my money between Vanguard, Schwab, and Fidelity in index and target date funds.
Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
In your scenario Wealthfront goes out of business and also somehow loses all records of its customers’ account balances? Can you point to an example of where the latter has happened, other than an outright fraud scenario?

“Going out of business” just means it can’t afford to meet its ongoing obligations. That has nothing to do with its electronic records.
In the out of business scenario there is nobody to service the distribution of the assets besides the SIPC since the company is theoretically out of money and has no or not enough employees to manage operations.

The point I'm trying to make is by implying the money is FDIC insured and just as safe as holding money directly with an FDIC institution or the Treasury is disingenuous. The FDIC makes a point to make sure everyone has their funds returned in a few business days but since in this scenario they have no reason to get involved it is up to the SIPC to return those funds.

Is this whole scenario unlikely, probably. But from the last provided information they are still not a profitable business. Why take the risk for a few basis points when larger profitable competitors have good money market products and there's plenty of similar yielding products with direct federal backing tied to the institution.
And do you have evidence that SPIC insured cash is more risky than FDIC insured cash?

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Re: Wealthfront now offers 2.51% APY

Post by boglenomics » Sun Jul 14, 2019 8:37 pm

HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 8:28 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:23 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 7:09 pm
boglenomics wrote: ↑
Sun Jul 14, 2019 7:02 pm
HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 6:52 pm


Here are the FDIC-insured banks Wealthfront is using:

https://support.wealthfront.com/hc/en-u ... 0022591631

So the .27 rate differential you refer to is not direct federal backing, which Wealthfront offers, but rather your personal cost of avoiding Wealthfront.
Hypothetically speaking what if Wealthfront were to go out of business? The program banks are probably not aware of who the money belongs to besides "Wealthfront Inc.". This means it would be up to the SIPC to figure out who owns the money and make sure it gets back to them. The program banks have no liquidity issues and the funds still exist so there is nothing to trigger the FDIC to get involved.

Maybe I am missing something but that is how I understand their setup.
In your scenario Wealthfront goes out of business and also somehow loses all records of its customers’ account balances? Can you point to an example of where the latter has happened, other than an outright fraud scenario?

“Going out of business” just means it can’t afford to meet its ongoing obligations. That has nothing to do with its electronic records.
In the out of business scenario there is nobody to service the distribution of the assets besides the SIPC since the company is theoretically out of money and has no or not enough employees to manage operations.

The point I'm trying to make is by implying the money is FDIC insured and just as safe as holding money directly with an FDIC institution or the Treasury is disingenuous. The FDIC makes a point to make sure everyone has their funds returned in a few business days but since in this scenario they have no reason to get involved it is up to the SIPC to return those funds.

Is this whole scenario unlikely, probably. But from the last provided information they are still not a profitable business. Why take the risk for a few basis points when larger profitable competitors have good money market products and there's plenty of similar yielding products with direct federal backing tied to the institution.
And do you have evidence that SPIC insured cash is more risky than FDIC insured cash?
SIPC is not a government organization where the FDIC is backed and operated by the federal government. Considering the FDIC is government backed I consider it less risky than SIPC. Also it's SIPC, not what you just said. That is something very different.

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Re: Wealthfront now offers 2.51% APY

Post by HEDGEFUNDIE » Sun Jul 14, 2019 8:44 pm

boglenomics wrote: ↑
Sun Jul 14, 2019 8:37 pm
SIPC is not a government organization where the FDIC is backed and operated by the federal government. Considering the FDIC is government backed I consider it less risky than SIPC. Also it's SIPC, not what you just said. That is something very different.
SIPC was founded by an act of Congress, so to call it “not a government organization” is a bit rich.

Both the FDIC and the SIPC are funded by member firm dues. Both also have lines of credit with the Treasury as a backstop.

So what exactly is the distinction?

To be perfectly clear on what we are arguing about, it is the case where:

1. Somehow Wealthfront fails.

2. Somehow that happens at the moment that a portion of your cash has yet to be moved to a FDIC bank.

3. Somehow Wealthfront is unable to account for that portion of your cash, or a creditor makes a senior claim on it.

4. Somehow the SIPC is unable to pay out on your claim.

How much yield are you willing to give up to insure against 1, 2, 3 and 4 occurring simultaneously?

Apparently you are willing to pay the equivalent of a 10% expense ratio.
Last edited by HEDGEFUNDIE on Sun Jul 14, 2019 9:05 pm, edited 3 times in total.

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Re: Wealthfront now offers 2.51% APY

Post by drk » Sun Jul 14, 2019 8:53 pm

HEDGEFUNDIE wrote: ↑
Sun Jul 14, 2019 8:44 pm
So what exactly is the distinction?
They offer different protections. This came up when Robinhood was slapped down for claiming that its "Checking & Savings" accounts enjoyed SIPC protection equivalent to FDIC insurance. Hypothetically, if Wealthfront used your cash to make short-term bets on cryptocurrencies before transferring to an FDIC account, and those bets went sour, SIPC would not guarantee the value of the cash that you deposited with Wealthfront whereas FDIC insurance would. Fortunately, that's not buried in the fine print here, but that's the difference in protection as I understand it.

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