Savings, whether for a sinking fund, short-term goals, long-term goals, or investment, are essential for effective personal finance management. For the most part, financial experts recommend saving your money where it works for you, earning interest and other returns rather than sitting in a bank, and that is where platforms like Wealthfront come in.
Wealthfront is a Robo-advisor platform with numerous options for growing your savings. The options include high-yield cash accounts held by partner banks, automated bond portfolios with low-risk, high-returns ETFs, and optimized tax returns for all accounts.
While the above prospects sound promising, the most crucial question is whether Wealthfront is insured by FDIC (Federal Deposit Insurance Corporation). Keep reading to learn about Wealthfront’s structure, including whether it offers FDIC protection for your deposits.
What Is FDIC Insurance?
To answer the question, “Is Wealthfront FDIC insured?” In this platform safety review, begin by understanding FDIC insurance and its role in investor protection. Below is an overview of the FDIC’s function in the American financial system.
The FDIC is an independent government agency established in 1933 to establish trust in the American financial system after thousands of banks crashed within a year. Its primary mandate was restoring public confidence in the banking/ financial system, which remains so to date.
Essentially, the massive 1933 disruption in the American banking system caused a panic characterized by citizens withdrawing their cash from banks to avoid losses. Money circulation is essential for a thriving economy, so Congress established the Federal Deposit Insurance Incorporation.
Although the FDIC is a Congress-sanctioned body, it does not receive funds from Congress to facilitate its mandate. It generates funds for its mandate via its deposit insurance function.
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Deposit insurance is a government-sanctioned guarantee to American financial industry consumers that their deposits to FDIC-insured financial institutions are safe to a specified degree. The FDIC offers this guarantee because it receives insurance premiums from registered financial institutions.
Like in the typical insurance business, the FDIC sets insurance premiums for banks and other depository institutions based on risk. Therefore, it charges a higher insurance premium for larger banks and those with a higher risk of closing or going into receivership. Its mandate is to maintain a statutory reserve minimum of 1.35% of the total deposits in registered financial institutions.
The FDIC channels the funds it earns from premiums into its insurance funds. It uses the funds to settle consumers up to the dollar amount in their account, including accrued interest, when the bank closed or went into receivership, or the set deposit amount, currently $250,000.
However, the FDIC does not cover all financial products a bank offers. It only covers a handful of deposit products, including the ones highlighted below:
- Checking accounts
- Saving accounts
- Money market deposits
- Certificates of deposit
You can establish whether the FDIC covers your assets by looking at its ownership category list.
Only banks and FDIC-insured deposit institutions, not consumers, pay the deposit insurance. The $250,000 deposit insurance automatically transfers to consumers who deposit funds in FDIC-insured financial institutions. The industry regulator currently has 5000 financial institutions registered under its mandate, and you can establish an institution’s FDIC registration by checking whether it appears on the FDIC’s BankFind tool.
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Is Wealthfront FDIC-insured?
As stated earlier, Weatherfront is a Robo-advisor platform, not a depository institution like a bank. Therefore, it does not qualify for direct FDIC insurance. Nonetheless, being a trustworthy institution, the platform offers FDIC insurance to its cash account and deposits consumers via the sweep deposit program in collaboration with its FDIC-registered bank partners.
So, what is a sweep deposit program? A sweep deposit program features sweep accounts or accounts held based on a contract between an insured depository institution and its consumer. The contract allows the depository institution’s consumer to pre-arrange or automate funds transfer from deposit accounts to investment vehicles.
Sweep account transactions can be internal or external. An internal sweep account includes transactions between accounts and investment vehicles within the depository institution, while an external sweep account utilizes investment vehicles outside the institution.
Nonetheless, external and internal sweep accounts receive FDIC insurance coverage, provided the depository institution(s) housing the accounts are FDIC insured. Moreover, sweep accounts offer liquidity, allowing end consumers to move their funds into and out of unlimited sweep accounts and investment vehicles as deemed necessary.
As stated, Wealthfront’s consumer benefits include high-yield cash accounts held by partner banks—the Robo-advisor platform partners with 20 FDIC-insured banks under the sweep deposit program to protect consumer deposits.
On the one hand, the FDIC offers insurance amounts of up to $250,000 per account within an insured financial institution. Be that as it may, Wealthfront’s partnership with multiple FDIC-insured banks allows it to bolster consumer deposit protection.
By partnering with 20 banks, Wealthfront multiplies the set deposit insurance amount twenty-fold, meaning each deposit account under its asset portfolio has deposit protection of up to $5000000.
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Conclusion:
Although Wealthfront is not a traditional depository institution, its collaboration with FDIC-registered banks offers investors unparalleled coverage for their deposits and savings on the platform. Therefore, consider contacting Wealthfront for a safe and rewarding platform to hold and grow your savings.
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