How does Betterment make money?

Best For

  • Investors who need a human advisor
  • Customizable portfolios
  • New investors

Betterment is among the largest independent robo-advisors, and that’s not surprising when you figure that Betterment took top honors in Bankrate’s review of the industry. The company offers two tiers of service – both at a competitive price – differentiated mostly by whether you have unlimited access to human advisors. Both offer core and premium functions, including investing, cash management, rebalancing and tax-loss harvesting. 

Betterment ramps it up a few notches with extra tools to help you plan and manage your taxes and charitable giving. Plus, it includes a variety of choices as it builds your investment portfolio, including funds for socially responsible companies and innovative technologies, among others. With a highly usable app packed with features and the ability to customize portfolios, Betterment should be on your shortlist for a new robo-advisor.

Those looking for access to human advisors as part of a robo-advisor package should also check out SoFi Automated Investing and Schwab Intelligent Portfolios. If you’re looking for a top-notch robo-advisor and don’t need access to human advisors, Wealthfront makes a compelling choice.

Goal Planning

Betterment excels at the goal planning model of investment management. Your saving and investing are segregated into buckets with various growth, timeline and risk metrics. For example, the money you’re saving for a home down payment is invested conservatively in bonds. While money for retirement is invested more aggressively with greater allocations to U.S. and international stocks. 

Betterment’s goal tracking includes the choice to connect outside accounts, for a 360° view of all of your assets. The Goal Forecaster tool also enables you to calculate when you will likely reach the goal. With ongoing goal tracking, you can adjust your saving and investing to improve the likelihood of success.

Goal setting begins with five broad choices:

  • Retirement
  • Retirement Income
  • Major Purchase
  • Safety Net
  • Education

After making a selection, you personalize your goals with a name, the number of years until funds are needed, and the target amount needed. One of the key strengths of Betterment is that it calculates the likelihood of achieving the goals under different market scenarios. Betterment also allows you to assign the external accounts synced to its platform to a goal, giving you a consolidated snapshot of your progress towards it. This level of consolidated scenario planning is a key strength of Betterment’s platform.   


Common questions about Betterment

Is Betterment a good investment? Investing your money with Betterment can be a smart idea. Betterment’s portfolios of ETFs have proven track records of returns. With low annual fees and no trade fees at all, it’s a low-cost option. Unlike some other platforms, Betterment also offers socially responsible investing options. If buying shares in a company that aligns with your values is a key part of your investment strategy, a Betterment brokerage account could be a good option. Yet if one of your investment goals is to save money for college, you might want to consider a similar platform with a 529 plan such as Wealthfront. You can see how Wealthfront vs. Betterment compare side-by-side and determine which is better aligned with your investment goals. How safe is Betterment? The SIPC protects Betterment investment account balances up to $500,000 per account against any losses that occur due to broker error. However, that SIPC insurance protection is only against errors on Betterment’s behalf, not market changes. Although Betterment is a reputable company registered by the SEC, no investment is guaranteed. There is always a level of risk when you invest your money, and your investment could lose value. Is Betterment good for beginners? Betterment is an excellent choice for beginner investors. There’s no investment minimum, and you can purchase fractional shares of ETFs so you can start investing with a very small amount of money. After you answer a few basic questions to sign up, Betterment will invest your money in ETFs for you based on your financial goals and risk tolerance. Can you lose money with Betterment? Yes, as with any investment, your investments with Betterment can lose money. If the market drops, your investment could lose value. Unlike checking or savings account deposits, investments are not FDIC insured, and there is no bank guarantee. Is Betterment better than Vanguard? Whether Betterment is better for your needs than Vanguard depends on your investment goals and approach. With Vanguard, you can invest in individual stocks, bonds, and mutual funds. However, Vanguard has a much higher minimum investment level, which may be intimidating for many new investors. For novice investors who want a more hands-off approach, Betterment makes it easier to get started. With preselected portfolios, automated rebalancing, and a handy mobile app, Betterment makes investing simple.

Who can use Betterment?

Betterment is available for anyone to use. It’s especially valuable for those who are new to investing and aren’t sure where to start. Because the Digital Plan doesn’t require an investment minimum, you don’t have to save hundreds or thousands of dollars before you can begin investing as you would with some other companies.

Betterment takes a lot of the guesswork out of the equation, and you don’t have to do a lot of work to manage your investments, which makes it a good choice for passive or hands-off investors. You simply answer a few questions, and Betterment creates a portfolio of ETFs for you. The company rebalances your investment portfolio as needed, so the account continually works hard for you.

Features and Benefits

Minimum Initial Investment

Betterment has no minimum initial investment requirement for its basic Digital Investing plan. You can open an account with no money at all and begin funding it with regular deposits.

Available Accounts

Available accounts include:

  • Taxable individual and joint brokerage accounts.
  • Traditional, Roth, SEP, and Roth conversion IRAs.
  • Trusts and non-profit accounts.
  • 401(k) plans.

Betterment Cash Reserve

Betterment Cash Reserve offers a nice interest rate of 1.60% APY. There’s no minimum balance required and no fees to worry about.

Another great feature that many savings accounts don’t offer is unlimited withdrawals from your account. Typically, you only get six withdrawals per month.

Betterment Cash Reserve APY Disclosure – The annual percentage yield (“APY”) on the deposit balances in Betterment Cash Reserve (“Cash Reserve”) is 1.60% and represents the weighted average of the APY on deposit balances at the banks participating in Cash Reserve (the “Program Banks”) and is current as of August 01, 2022. This APY is variable and subject to change daily. Deposit balances are not allocated equally among the participating Program Banks. A minimum deposit of $10 is required, but there is no minimum balance required to be maintained. The APY available to a customer may be lower if that customer designates a bank or banks as ineligible to receive deposits. APY applies only to Cash Reserve and does not apply to checking accounts held through Betterment Checking. Cash Reserve and Betterment Checking are separate offerings and are not linked accounts. 

Betterment Checking

Betterment also offers a checking account with no fees, no minimum balance, and FDIC insurance up to $250,000. Plus, your ATM fees are reimbursed worldwide.

Best of all, your Betterment checking account also comes with a Betterment Visa® Debit Card that earns cash back on purchases from participating brands. Rewards are available at more than 10,000 merchants worldwide, both online and in-person (for online shopping, you’ll need to shop through Betterment’s “Earn Rewards” section on the site or app).

Cash back is automatically deposited into your account within 90 days. To make earning rewards easier, Betterment remembers where you shop most to show you relevant offers. You can also use the app’s locator to find offers in your area.

If you’re getting started with investing, the extra money in your account each month could give you the funds you need to boost your portfolio.

Mobile Check Deposits

Mobile check deposits are available through the ap

Mobile check deposits are available through the app. This feature is convenient and straightforward to use.

Financial Advice Packages

Robo-advisors give investors a hands-off way to grow their wealth, but sometimes you need direct financial advice too. Betterment offers five different packages to help you plan for the future with a hand from dedicated financial experts.

This is a premium service that costs extra. The prices are:

  • Getting Started Package – $299.
  • Financial Checkup Package – $399.
  • College Planning Package – $399.
  • Marriage Planning Package – $399.
  • Retirement Planning Package – $399.

External Account Syncing

Similar to financial account aggregators like Personal CapitalBetterment lets you add external accounts to your Betterment account. The platform doesn’t actually manage them, but adding them to your account can give you a better overview of your finances. Betterment will also provide advice about your outside investments (if you have the Premium plan).

For example, you can sync an employer-sponsored retirement plan such as a 401(k). Betterment can then make recommendations on how to better manage this account and others.

Betterment Mobile App

Betterment offers its mobile app with all the functions and capabilities of the web version. It’s available in the App Store for iOS devices 11.0 and later and compatible with iPhones and iPads.

It’s also available on Google Play for Android devices 6.0 and up.

Deposits and Withdrawals

The most convenient way to make a deposit into your account is through electronic transfers from your checking account via the ACH network.

You can also transfer assets from outside brokerage accounts using the Automated Customer Account Transfer Service (ACATS). Transfers from retirement accounts can be completed through IRA rollovers.

Transferred funds are automatically invested within one or two business days. Betterment does not accept deposits made by check or by credit or debit cards. Wire transfers are recommended only for large transfers due to the fees involved.

Customer Service

Betterment can be contacted by either phone or email, Monday through Friday, from 9:00 am to 6:00 pm Eastern Time.

Betterment Account Protection

Your account is protected by coverage from the Securities Investors Protection Corporation (SIPC) for up to $500,000 in securities (including up to $250,000 in cash).

For additional account security, you can set up two-factor authentication. This can protect your account even if your password is compromised.

Two-factor authentication requires you to enter a unique verification code to access your account. You can receive the code either by text or email.

Betterment Features and Benefits

Betterment has a large number of features and benefits, but here are some of the most important ones:

  • Account protection. Your account is covered under the Securities Investors Protection Corporation (SIPC), for up to $500,000 in cash and securities, including up to $250,000 in cash. This protects you from broker failure but not losses due to market fluctuations.
  • Customer Service. You can contact Betterment by Phone or by Live Chat, Monday through Friday, 9:00 am to 8:00 pm Eastern Time (ET), and Saturday and Sunday, from 11:00 AM to 6:00 PM ET. You can also contact them by email at any time.
  • Betterment Mobile App. Betterment offers mobile apps for both iOS and Android. You can download them at the App Store and Google Play.
  • Creating Investment Goals. You can create customizable sub-accounts that Betterment calls goals. These can include retirement, a “Safety Net” (emergency savings), or another intermediate goal, such as saving for college education or a house.You can set a portfolio allocation, time horizon, and schedule deposits and withdrawals for each goal. You can add new goals by clicking the “Add Account” button. You can create individual portfolios for very specific investment needs.
  • Flexible Portfolios. After you’ve established your portfolio, those with $100,000+ in assets will be able to manually adjust the allocations of your portfolio to better suit your needs. You get your allocation but all the automation and tax benefits of Betterment’s management.
  • RetireGuide. Betterment offers this as a retirement planning tool. It provides you with advice to enable you to achieve your retirement goals. You can determine how much money you’re likely to spend in retirement plus how much you’ll need to save to support that spending.It will also show you which accounts to save in, and that includes your employer retirement plan, as well as traditional and Roth IRAs, or taxable investment accounts. This will enable you to securely sync all your investment and retirement accounts, and not just those that you have with Betterment.You can even change the assumptions within RetireGuide to account for different outcomes. For example, you can adjust the expected level of Social Security income or an employer pension plan. This will give you the ability to tweak your retirement expectations as you move closer to your retirement date.
  • SmartDeposit. This is Betterment’s automated cash investment tool. It works by moving excess cash from your bank account into your Betterment account, based on parameters that you set. For example, you establish the maximum amount of money that you want to have in your bank account, and then Betterment automatically moves the excess balance into your investment account.
  • Betterment Advisor Network. Recognizing that some people may prefer contact with a human investment advisor to go along with their roboadvisor portfolio, Betterment created this network. They can match you with one of the vetted independent Certified Financial Planners in the network, who will get to know you personally. They can then develop a customized, comprehensive financial plan, and help you with more advanced and complex financial issues.

User Experience

Desktop Experience

Betterment’s desktop user experience is clean with a comprehensive dashboard and easy access to accounts, goals, performance, and fund transfers. The ability to connect outside accounts enables users to monitor all of their finances from the Betterment platform. Investors can monitor and adjust goals from the dashboard as well.

Mobile Experience

The Betterment app offers all of the functionality of the desktop version. There are a number of clever nudges on the app that help users save more and invest with taxes in mind. Both the android and iOS versions are highly ranked (4.7 iOS and 4.6 android), although some users have reported difficulty with linking accounts and fund transfers.

Betterment Pricing & Fees

In late 2017, Betterment updated their pricing from a three tier pricing model to only two:

The list a “no fee” version on the pri

The list a “no fee” version on the pricing page but it’s not for the robo-advisor, it’s for their cash management account. It includes their tools (financial goal-setting and advice tools, retirement planning tools, and feedback on accounts you hold at other institutions) but not actual management.

Betterment works on a flat fee based on the size of your portfolio. There are no other trading fees or commissions. No transfer fees. And no fees for rebalancing your portfolio.

The standard fee (Digital) is 0.25% of your account balance. You can have up to $100,000 account managed with Betterment for $250 per year. Even at the lowest service tier, you get all the benefits of a Betterment – rebalancing, tax harvesting, diversification, etc.

For a Betterment Premium account, which requires a $100,000 minimum account balance, the annual fee is 0.40%. $100,000 funded account managed by Betterment for a mere $400 per year. Betterment appears to have eliminated the Plus account and renamed it the Premium, lowering the Premium fee down to 0.40% from its previously 0.50% fee.

The typical human investment advisor would charge 1.00% to 1.50%. If they’re managing $100,000, you’d be paying $1,000-1,500 per year. (and that’s probably not enough to get them out of bed in the morning!)

There is a discount of 0.10% on the portion of your balance above $2 million:

  • Digital fee: 0.15% on balances over $2 million
  • Premium fee: 0.30% on balances over $2 million

2. Asset Appreciation

Betterment will personalize a portfolio based on your long-term financial goals.

Its investment strategy is built on low-cost exchange traded funds (ETFs). They also take into account the amount of risk you’re willing to take and how long you plan to invest.

The majority of your gains from the stock market are usually from asset appreciation, or buying low and selling high. However, you do need to sell the underlying asset in order to actually recognize the gain.

So, you basically make the most money from Betterment though prices of ETFs going up over time. Keep in mind, though, prices can go down as well resulting in potential losses.

A Short History Of Betterment

Betterment, headquartered in New York, was founded in August 2008 by Jon Stein (CEO), Eli Broverman, Sean Owen, and Ryan O’Sullivan.  

Stein, who graduated from Harvard with a degree in Economics, was initially thinking to pursue a professional career in medicine. But the two things that ultimately held him back were his unease of blood as well as the perception that he would not be able to help enough people.

After graduating from Harvard, he went on to work in financial advisory for companies such as FMCG Direct.

The idea for Betterment originated from Stein’s personal frustrations with managing his money online. Some of the existing solutions at the time, such as Vanguard or ING Direct, were offering very poor user interfaces, complicated to set up, and charged outrageous account maintenance fees.

Having worked in the finance industry for more than half a decade, Stein thought to himself that he could develop a much better solution. At the time, he was enrolled at Columbia Business School, pursuing an MBA in Entrepreneurship.

With some additional time available, he began crafting out a plan for what would eventually become Betterment. To get a head start on development, he began consulting his then-roommate Sean Owen (a Google engineer and former CS major at Harvard).

Together with Owen, the pair developed a first working type of Betterment. Stein worked on the front end while Owen built all the backend capabilities. But given the complex regulatory nature of financial instruments, Stein needed someone with a little more experience in that field.

Luckily, that experience came in the form of Eli Broverman, who at the time worked as a securities attorney. The guys met a few years earlier at a poker game and remained friends throughout that time.

They registered the business soon after with the SEC, becoming an accredited investment advisor. What was missing, though, was how they would be able to become a licensed broker-dealer. The team visited a few conferences in which they became acquainted with Ryan O’Sullivan.

O’Sullivan, a serial entrepreneur himself, had an extensive network of broker-dealers and could thus make the necessary introductions to set everything up. So in August 2018, all the necessary agreements were in place, and Betterment LLC was able to officially incorporate.

Betterment finally launched to the public at the first-ever TechCrunch Disrupt (where it placed #1) conference on May 26, 2010. By that time, the founding team had already invested $640,000 to start the business.

Wayback Machine
Wayback Machine

Owen, in the meantime, had already moved on as he relocated to London to start his own business. His replacement as CTO became Kiran Keshav, who at the time ran Columbia University’s Center for Computational Biology.

To bank on the ever-increasing smartphone market, Betterment decided to launch an ancillary iPhone app weeks after.

By December 2010, Betterment had already onboarded thousands of users while managing millions in assets. That growth led to the company’s first-ever round of funding in which it raised $3 million from Bessemer Venture Partners, Anthemis Group, and a combination of a few angels.

Within two years of operation, the company had already amassed 10,000 paying users, which deposited over $50 million into their accounts. All of that was achieved with a team of 13. That certainly fits the operating model of CEO Stein, who writes the following about himself on LinkedIn:

“I’m an efficiency architect and happiness engineer. My “polestars” are efficiency and happiness. Okay, this is some high-falutin’ language; we can just have a beer and talk about power tools around a campfire if you prefer, but who knows who else might read this? Anyway, let me explain:

Efficiency is making more from less – it makes us humans (and the planet) better off (and in aggregate, happier). Transparency, reliability, process, and fairness are guideposts on the route to efficiency. Economics, psychology, and design are my favored navigational systems.”

That ethos has been carried forward throughout his company and became an integral part of Betterment’s success story. Another advantage was the firm’s ability to listen to its users and consistently expand its product offering.

One example is Betterment’s for Business platform (launched in 2016), which provides 401(K) plans for companies, and attracted 300 customers within a few days of operation. Another prominent example, highlighting its rapid speed of development, is its cash goals feature that was launched during the Coronavirus pandemic and helps users to better manage their finances in these trying times.

What’s surprising about Betterment, especially when compared to other high-growth FinTech companies such as Robinhood, is the fact that the company has been operating out of the public eye for most of its existence.

Stein argues that this is due to the company’s focus on making personal finances as easy and hassle-free as possible. It wants to create a safe space for individuals to manage their wealth and save for retirement. The company therefore has implemented a low-risk investment strategy by primarily focusing on ETFs and bonds.

Today, Betterment serves more than 500,000 accounts with an average account size of $44,000. It now has $22 billion AUM, which makes it America’s biggest robotic advisor (with Wealthfront being a close second). Furthermore, close to 500 people are now employed by the company.


156.5 MB
Requires iOS 12.1 or later.
iPod touch
Requires iOS 12.1 or later.


Age Rating
© Betterment LLC

Price Free