Betterment Review 2021: Pros, Cons and How It Compares

Betterment’s goal-oriented tools and helpful tax strategies should appeal to investors of all types. Access to human advisors is available with the Premium plan, or by purchasing a standalone advice package.
Alana BensonOct 12, 2021

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Our Take

5.0

NerdWallet rating 

The bottom line: Betterment is a clear leader among robo-advisors, with two investing service options: Betterment’s base service has no account minimum and charges 0.25% of assets under management annually. Betterment Premium provides unlimited phone access to certified financial planners for a 0.40% fee and $100,000 account minimum.

Betterment

on Betterment's website

on Betterment's website

Fees

0.25%

management fee

Account Minimum

$0

Promotion

Up to 1 year

of free management with a qualifying deposit

Pros & Cons

Pros

  • Multiple portfolio options and customization.
  • No account minimum and low fees.
  • Fractional shares mean all your cash is invested.
  • Robust goal-based tools.

Cons

  • No direct indexing.

Compare to Other Advisors

Betterment
SoFi Automated Investing
Vanguard Digital Advisor
NerdWallet rating 
NerdWallet rating 
NerdWallet rating 
Fees

0.25%

management fee

Fees

0%

management fee

Fees

0.15%

per year (approximately)

Account Minimum

$0

Account Minimum

$0

Account Minimum

$0

Promotion

Up to 1 year

of free management with a qualifying deposit

Promotion

Free

career counseling plus loan discounts with qualifying deposit

Promotion

No advisory fees

your first 90 days of Vanguard Digital Advisor investment management (Enrollment requires a Vanguard account with a minimum of $3,000)

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Full Review

Where Betterment shines

Lots to like: Betterment offers multiple portfolio options and customization, has no account minimum and a low management fee.

Fractional shares: Fractional shares mean all your cash is invested.

Where Betterment falls short

No direct indexing: While Betterment does offer tax-loss harvesting, the firm does not offer direct indexing. This is where Betterment falls short of competitor Wealthfront, where direct indexing is available for free on accounts of $100,000 or more.


Betterment is best for:

  • Hands-off investors.

  • Retirement investors.

  • Users with low balances.

  • Those who want automatic rebalancing.

  • Users who like goal-based tools.

Betterment at a glance

Account minimum

$0.

Account management fee

0.25%.

Investment expense ratios

Average expense ratio of 0.11%.

Account fees (annual, transfer, closing)

None.

Portfolio mix

Core portfolio uses ETFs from 13 asset classes.

Portfolio options include: Betterment Core, Goldman Sachs Smart Beta, Blackrock Target Income, Betterment Flexible Portfolio.

Portfolio mix is well-diversified but lacks exposure to non-market correlated assets like real estate investment trusts (REITs) and commodities.

Socially responsible portfolio options

Three socially responsible investing portfolio options: Broad Impact, Climate Impact, and Social Impact.

Accounts supported

Individual and joint nonretirement accounts.

Roth, traditional, rollover and SEP IRAs.

Trusts.

Ability to link external accounts for personalized advice (but not direct management).

Tax strategy

Tax-loss harvesting.

Tax-Coordinated Portfolio tool.

Tax Impact Preview tool.

Charitable giving tool.

Automatic rebalancing

Free on all accounts.

Monitored daily. Buy/sell rebalancing triggered whenever portfolio drifts, reaches or exceeds 3%.

Also, Betterment uses any cash flow, such as a dividend or deposit, to partially rebalance your portfolio.

Human advisor option

Betterment Digital doesn't offer access to financial advisors. However, for a fee, anyone can buy an advice package that includes a consultation with an advisor, regardless of if they have a Betterment account or not. Prices range from $199 to $299.

Savings account/cash management option

High-yield savings with no fees or minimum balance requirements, unlimited transfers and FDIC coverage for balances up to $1 million. Includes a feature that enables customers to save in separate buckets for different goals.

Checking account that reimburses ATM fees and foreign fees and has a debit card with cash back.

Customer support options (includes how easy it is to find key details on the website)

Phone support Monday-Friday 9 a.m.-8 p.m. Eastern time for checking/cash reserve inquiries.

Monday-Friday 9 a.m.-6 p.m. Eastern time for investing and general inquiries.

Email support and questions also answered through social media.

More details about Betterment's ratings

Looking for access to financial advisors? Jump to Betterment Premium.

Account minimum: 5 out of 5 stars

Betterment is one of the few robo-advisors that doesn't require a minimum balance, so you can get started with any amount of money.

Account management fee: 4 out of 5 stars

Betterment’s digital investing tier charges a 0.25% annual fee. That fee is on the cheaper end compared to many other robo-advisors, and if you want to talk to a financial advisor, you can purchase one of the company's financial advice packages (more on those below).

If you have a high account balance, for the portion of your household balance above $2 million, you'll receive a 0.10% discount. This means that onn the Digital plan, you'll pay just 0.15% for the portion of your balance above $2 million, and on the Premium plan, you'll pay 0.30% for the portion of the balance above $2 million.

Investment expense ratios: 4 out of 5 stars

An expense ratio is an annual fee charged by mutual funds, index funds and ETFs, as a percentage of your investment in the fund. If you invest in a mutual fund with a 1% expense ratio for example, you’ll pay the fund $10 per year for every $1,000 invested. If high, these fees can significantly drag down your portfolio returns, but the expense ratios of the funds used in Betterment portfolios are only 0.11%. Expense ratios are paid in addition to Betterment’s management fee (but since they are deducted from your account, you won’t see it as a separate fee).

Account fees: 5 out of 5 stars

Betterment charges no fees aside from its account management fee and expense ratios.

Portfolio mix: 4 out of 5 stars

Like many robo-advisors, Betterment bases its investment philosophy on modern portfolio theory, which highlights the benefits of diversification. In its core portfolio, the company uses exchange-traded funds that represent about 13 asset classes for different levels of risk tolerance and your goals. Customers who want a bit more control over their investment portfolio can use Betterment’s “flexible portfolios” tool to adjust the percentage of their money invested in any particular ETF.

Investors also can choose among other portfolio options: a smart beta portfolio that seeks higher-than-average returns by embracing systematic risks; an income portfolio made up solely of bonds; and socially responsible portfolios, which use ETFs comprising companies whose business practices align with certain social causes (more on this below).

Socially responsible portfolio options: 5 out of 5 stars

Betterment not only has a socially responsible portfolio option, it has three. Broad Impact doesn’t focus on any one particular issue, but is intended for those who are interested in Environmental, Social and Governance investing at large. Climate Impact invests in companies with lower carbon emissions, the funding of green projects and divestment from fossil fuels. The Social Impact portfolio focuses on supporting minority empowerment and gender diversity.

Accounts supported: 3 out of 5 stars

Betterment supports individual and joint nonretirement accounts, Roth, traditional, rollover and SEP IRAs and trusts.

» Want to check out other providers? Here are our top picks for best robo-advisors.

Betterment will allow you to link external accounts for personalized advice (but it will not manage those accounts directly).

Tax strategy: 5 out of 5 stars

Betterment offers tax-loss harvesting on taxable accounts. The platform automatically reviews your investments daily to reduce tax exposure. But it doesn’t have direct-indexing like Wealthfront, which provides this service on taxable accounts with balances of $100,000 or more. Direct indexing buys the single securities held by an index, rather than the ETF tracking that index. That can help single out tax-loss harvesting opportunities and save investors with taxable accounts a significant amount of money.

Betterment's Tax-Coordinated Portfolio is a solid attempt to bridge this gap. This is an "asset location" strategy that automatically puts tax-efficient investments into taxable accounts and investments that have a heavy tax burden into tax-advantaged accounts that will shelter them. (You need to have both taxable and tax-advantaged retirement accounts at Betterment for the strategy to work.)

Betterment offers a Tax Impact Preview tool that lets you see the potential tax hit of any portfolio moves before you make them. Betterment also has a charitable giving tool that gives customers a tax-efficient way to donate appreciated securities to charities directly on the Betterment platform.

Automatic rebalancing: 5 out of 5 stars

Automatic rebalancing is regular rebalancing of your portfolio in response to market fluctuations or other factors that shift your portfolio out of its intended investment allocation. The market moves and over time, your allocation will move, too. So if your target was having 60% in stocks and 40% in bonds and your stocks are doing well, you could end up having 70% in stocks, which may be more risk than you are comfortable with. With automatic rebalancing, the computer monitors your allocation and will automatically adjust your investment if it gets out of line. Betterment’s algorithms check daily for the need to rebalance within your portfolio and automatically rebalances investor portfolios when cash flows in or out — in the form of dividends, contributions or withdrawals — or when the allocation to a particular asset class drifts 3% or more from its target level.

Human advisor option: 2 out of 5 stars

Betterment offers advice packages targeted to specific life events. A $299, 45-minute “getting started” call with a CFP helps new clients set up their Betterment account, make the most of Betterment tools and features, and start investing. The other four packages each cost $399 for a 60-minute call, with advice geared toward college planning, marriage, retirement and general financial health. With all of the packages, you're speaking with a CFP.

Betterment’s sign-up process takes you through a goal-setting exercise, asking for your age and current annual income. Then it suggests a series of goals based on your answers, estimating a safety net of three to six months of expenses, a retirement savings target and a general investing goal. Each goal comes with a recommended target and asset allocation, which you can adjust. You can also add other, personalized goals that will dictate the account types used and the way your money is invested. And you can set up auto-deposits into each goal.

If you’re looking for advice from a financial advisor, jump to Betterment Premium.

Savings account/cash management options: 2 out of 5 stars

Betterment offers both checking and savings accounts. The savings account is called Cash Reserve and it comes with an interest rate of 0.10%. (This interest rate is variable and may change.) Your savings will get up to $1 million in FDIC insurance coverage, there's no minimum balance requirement, and you won't pay a fee on your balance. The Cash Reserve account allows you to create separate buckets of cash for specific goals and set up auto-deposits for each.

Betterment’s checking account has no minimum balance, no foreign transaction fees and no overdraft fees. The company reimburses ATM fees worldwide. There is also a joint checking account option.

You can link your checking account to your savings with Betterment, and the company's Two-Way Sweep feature will move any unused money — that is, money that its cash analysis tool sees as excess, based on your regular spending — into your savings. It also can move cash back to your bank account when your balance runs low. You can change the target balance for your linked checking, and Betterment sends an alert before making a sweep, which gives you the opportunity to cancel if you like.

» Want more details? Read about Betterment's Cash Management Account.

Customer support options: 3.5 out of 5 stars

Betterment offers phone support Monday to Friday 9 a.m. to 8 p.m. Eastern time for checking and cash reserve inquiries and Monday to Friday 9 a.m.-6 p.m. Eastern time for investing and general inquiries.

Betterment also has email support and will address questions through social media.

Other features you should know

Betterment’s retirement planning tool lets you link your non-Betterment accounts, including 401(k)s, giving a full picture of all your savings and investment accounts. With this information, the tool can offer comprehensive retirement planning advice, including comparing current savings levels with your desired spending levels in retirement, answering questions about whether you’re saving enough money, when you’ll be able to retire, and if you’re using the correct savings vehicles and investments. It updates and syncs to outside accounts daily and allows for Social Security data uploads.

Betterment Premium at a glance

Betterment Premium is Betterment’s upper-tier service. Betterment Premium charges a 0.40% annual fee and requires a minimum $100,000 balance in exchange for unlimited phone access to a team of certified financial planners. You can also get advice on investments held outside of Betterment from your team of CFPs.

» Want to compare options? Check out our roundup of the best wealth advisors

Account minimum

$100,000.

Account management, planning or subscription fee

0.40%.

Setup or onboarding fee

None.

Advisor access and credentials

Clients have unlimited access to a team of CFP professionals for no additional fee. Advisors can be reached by phone and email Monday to Friday from 9:00 a.m. to 6:00 p.m. Eastern.

If clients are looking for a dedicated advisor, Betterment may be able to connect them to a dedicated advisor depending on availability.

Financial planning services

Premium includes all the features of Betterment's lower-tier offering, including investing portfolios, socially responsible investing options, automatic features like portfolio rebalancing, dividend reinvestment, and auto-adjust.

Premium CFPs will be able to help you with some financial planning, such as debt reduction, but not estate or business planning.

Premium clients also receive in-depth advice on investments held outside of Betterment.

Brokerage options

Only manages accounts held within Betterment.

Is Betterment right for you?

Betterment’s goal-oriented tools and features should appeal to retirement investors, and the human advice offering through Betterment Premium is inexpensive compared with other independent hybrid advisors, such as Personal Capital. But Betterment’s CFPs won’t be able to help you with everything a typical financial advisor can, such as estate and business planning. Betterment’s variety of socially responsible portfolios is one of the best in the business.

How do we review robo-advisors?

NerdWallet’s comprehensive review process evaluates and ranks the largest U.S. robo-advisors by assets under management, along with emerging industry players, using a multifaceted and iterative approach. Our aim is to provide an independent assessment of providers to help arm you with information to make sound, informed judgements on which ones will best meet your needs.

DATA COLLECTION AND REVIEW PROCESS

We collect data directly from providers, and conduct first-hand testing and observation through provider demonstrations. Our process starts by sending detailed questionnaires to providers to complete. The questionnaires are structured to equally elicit both favorable and unfavorable responses from providers. They are not designed or prepared to produce any predetermined results. The questionnaire answers, combined with product demonstrations, interviews of personnel at the providers and our specialists’ hands-on research, fuel our proprietary assessment process that scores each provider’s performance across more than 20 factors. The final output produces star ratings from poor (one star) to excellent (five stars). Ratings are rounded to the nearest half-star.

RATING FACTORS

Evaluations vary by provider type, but in each case are based upon the weighted averages of factors that include but are not limited to: advisory and account fees, account minimums and types, investment selection, investment expense ratios, trading costs, access to human financial advisors, educational resources and tools, rebalancing and tax minimization options, and customer support including branch access, user-facing technology and mobile platforms.

Each factor can involve evaluating various sub-factors. For instance, when gauging the investment selections offered by robo-advisors, 80% of the score is based on the potential for diversification (how well-diversified a resulting portfolio of investments could be) combined with the availability of specialty portfolios and level of customization for investors. Expense ratios form an additional 10% of the score, and low or no management fee the remaining 10%.

FACTOR WEIGHTINGS

The weighting of each factor is based on our team’s assessment of which features are the most important to consumers and which ones impact the consumer experience in the most meaningful way. The factors considered, and how those factors are weighted, change depending upon the category of providers reviewed.

INFORMATION UPDATES

Writers and editors conduct our broker reviews on an annual basis but continually make updates throughout the year. We maintain frequent contact with providers and highlight any changes in offerings.

THE REVIEW TEAM

The review team comprises seasoned writers, researchers and editors who cover stocks, bonds, mutual funds, index funds, exchange-traded funds, alternative investments, socially responsible investing, financial advisors, retirement and investment strategy on a daily basis. In addition to NerdWallet, the work of our team members has been published in The New York Times, The Washington Post, Forbes, USA Today, Bloomberg News, Nasdaq, MSN, MarketWatch, Yahoo! Finance and other national and regional media outlets.

The combined expertise of our Investing team is infused into our review process to ensure thoughtful evaluations of provider products and services from the customer perspective. Our writers and editors combine to have more than 70 years of deep experience in finance, ranging from a former Wall Street Journal reporter to a former senior financial advisor at Merrill Lynch.

CONFLICTS OF INTEREST

While NerdWallet does have partnerships with many of the reviewed providers, we manage potential conflicts of interest by maintaining a wall between our content and business operations. This wall is designed to prevent our writers and the review process from being influenced or impacted by our business partnerships. This way, all reviews can provide an unbiased review that serves the interests of our users. For more information, see NerdWallet’s editorial guidelines.

on Betterment's website