Betterment Review 2023: Pros, Cons and How It Compares

Where Betterment shines

Where Betterment falls short

What Betterment is best for

Betterment at a glance

Full details about Betterment

Betterment Premium

Is Betterment right for you?

How we review robo-advisors: our methodology

Where Betterment shines

Lots to like: Betterment offers multiple portfolio options and customization, has a low minimum investment, and charges a very reasonable annual management fee of just 0.25% for those who qualify. Otherwise, it's $4 per month.

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.

More details about Betterment's ratings

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Account minimum: 5 out of 5 stars

Betterment doesn't have an account minimum, but it is $10 to start investing.

Account management fee: 5 out of 5 stars

Betterment’s digital investing tier charges a 0.25% annual fee on balances over $20,000 or if you set up recurring monthly deposits totaling $250 or more. If you don't meet those criteria, you'll be charged $4 per month.

Most robo-advisors charge a fee of around 0.25% across all account balances. But if you have a $10,000 balance and you're paying $4 per month you're essentially paying a 0.48% fee.

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 on 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: 5 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 Core Portfolios are only 0.06% as of Oct. 20, 2022. 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 for its traditional investment products (crypto fees do apply) 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 12 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 an innovative technology portfolio that focuses on industries such as semiconductors, virtual reality and artificial intelligence. Betterment also offers several socially responsible portfolios, which use ETFs comprising companies whose business practices align with certain social causes (more on this below).

In October 2022, Betterment rolled out a distinctive cryptocurrency product, through which it allows customers to buy a diversified portfolio of digital assets focused on particular sectors of the blockchain space. 

Among the baskets of investments available are a Sustainable option, which focuses on cryptocurrencies that seek to avoid the use of energy-intensive mining processes. Another option is a diversified Universe portfolio that includes some of the most dominant cryptos such as Bitcoin and Ethereum. 

Another notable aspect of Betterment’s offerings a “golden rule” feature that encourages overall portfolio diversification by pushing customers not to put more than 5% of their investable assets into crypto. 

Betterment says fees for its crypto products can vary, but they top out at about .15% per trade. That is on the lower end of the spectrum among crypto exchanges reviewed by NerdWallet. 

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: 5 out of 5 stars

Betterment supports individual and joint nonretirement accounts, Roth, traditional, and SEP IRAs (as well as rollovers for all these account types) 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 reviews your investments daily to reduce tax exposure, and if certain conditions are met, takes action in your account. 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.

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.

Note: In April 2023, the Securities and Exchange Commission charged Betterment for misstatements related to its tax-loss harvesting service that impacted 25,000 accounts between 2016 and 2019. The SEC found that Betterment failed to disclose to clients a change in how frequently its tax-lost harvesting software scanned accounts, and had two coding errors that resulted in some clients missing out on the tax-loss harvesting benefits. Betterment has agreed to pay a $9 million penalty to settle the charges and the company tells NerdWallet it has resolved these issues^[0]

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 generally 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.

Savings account/cash management options: 4 out of 5 stars

Betterment offers both checking and cash accounts. The cash account is called Cash Reserve and it comes with an interest rate of 4.75%. (*Base annual percentage yield (variable) is 4.75% as of 7/31/23. 5.50% APY reflects a .75% boost available as a special offer with qualifying deposit. Terms apply. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through clients’ brokerage accounts at Betterment Securities.) Cash Reserve offers up to $2 million in FDIC insurance coverage for individual accounts, and up to $4 million in coverage for joint accounts at program banks. 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.

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

Customer support options: 4 out of 5 stars

Betterment offers phone support Monday to Friday 9 a.m.-6 p.m. Eastern time.

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

Other Betterment 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’s latest move into crypto, which isn't a common offering among robo-advisors, builds off of its recent acquisition of the cryptocurrency investment platform Makara, which focused on selling similar collections of crypto investments. And it seeks to take on a gap in the field of crypto, which has few readily available products that offer diversified access to the sector. 

Another notable aspect of Betterment’s offerings a “golden rule” feature that encourages overall portfolio diversification by pushing customers not to put more than 5% of their investable assets into crypto. 

Betterment says fees for its crypto products can vary, but they top out at about .15% per trade. That is on the lower end of the spectrum among crypto exchanges reviewed by NerdWallet. 

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

Reviewed: Oct. 2022

Period considered: Aug. - Oct. 2022

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 Empower. 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 a great option for socially conscious investors.

*Betterment is not a licensed tax advisor. Tax Loss Harvesting+ (TLH+) is not suitable for all investors and certain conditions apply. Read more at https://www.betterment.com/legal/tax-loss-harvesting and consider your personal circumstances before deciding whether to utilize Betterment’s TLH+ feature. Investing involves risk. Performance not guaranteed.