
How the Fed Funds Rate Impacts the Wealthfront Cash Account - jbredeche
https://blog.wealthfront.com/how-the-fed-funds-rate-impacts-the-wealthfront-cash-account/
======
apo
That's an awful lot of explaining for a pretty simple concept. Fed funds rate
is a benchmark interest rate that Wealthfront, like many products, is tied to.

Rate goes down, and your interest payment goes down.

I suspect this has to do with fact that there has never been a rate decrease
in the lifetime of the product:

> Wealthfront Inc. is an automated investment service firm based in Redwood
> City, California,[2][3][4][5] founded by Andy Rachleff and Dan Carroll in
> 2008

[https://en.wikipedia.org/wiki/Wealthfront](https://en.wikipedia.org/wiki/Wealthfront)

The decrease came only as a surprise to those who weren't paying attention.

The rate is in all likelihood headed to zero and below, just like so many
other industrialized economies have already done.

If that comes as a surprise then once again, you haven't been paying
attention.

~~~
joeyrideout
Indeed, word on The Street leading up to the announcement was 0.25 rate cute
was most likely followed by a small likelihood of 0.50 cut. No surprise.

I disagree, however, that rates are going to zero in the States. ZIRP/NIRP are
going very badly in EU and JP and The Fed does not want to replicate that
outcome. What's more likely is a long-term interest rate peg before cutting
short-term rates that low.

~~~
toomuchtodo
PSA: You can track market sentiment with regards to rate cuts here:
[https://www.cmegroup.com/trading/interest-rates/countdown-
to...](https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)
(CME FedWatch Tool)

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lr4444lr
Frankly, I don't trust anything Wealthfront says about this product. Try
invoking arbitration opt-out as per your right in 18-A of the Wealthfront ToS:
turns out they don't actually support opt out, and will gladly cancel your
account if you insist on having it. Makes you wonder what else in their
contract they won't adhere to.

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sailfast
They say multiple times that this decrease was unexpected but it seemed to be
pretty well telegraphed based on my read of the situation.

Is this article for customers that don’t know what interest rates are so they
are not upset about a lower rate?

~~~
etrautmann
This article is advertising for their product, nothing more.

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mslate
"The vast majority of our competitors will likely lower their rates even more
than 0.25%" is silly FUD

Personal Capital & Betterment are lowering their rates on their high yield
accounts by the same 0.25%

~~~
TAForObvReasons
Sofi and a bunch of other high yield checking/savings accounts are doing the
same

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driverdan
Why are people upvoting this? It's a thinly veiled ad for Wealthfront with
minimal content. How is anyone surprised that savings account interest rates
are tied to Fed rates?

~~~
jakelazaroff
How is there minimal content? It's a simple explanation of how how Fed rates
impact interest rates. People have to learn about these things _somewhere_ ; I
learned about it from this article.

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breck
Slightly off topic: does anyone know if Wealthfront manages HSAs? I really
have liked their stuff and would like to "rollover" (not sure if that's the
proper term) an old former employer HSA to them.

~~~
astura
Doesn't appear that they do, based on Google, but I can offer a suggestion,
Fidelity is the best place to keep your HSA. No fees and excellent investment
options.

~~~
breck
Thanks! Didn't know Fidelity did that. I'll see about rolling over to them for
now.

~~~
astura
It's new - They've done HSAs for employers for more than a decade but they
just very recently opened them up to individuals.

I have an individual HSA with Fidelity, so I'm speaking from experience.

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nodesocket
I have a high interest savings account with Marcus by Goldman Sachs. They used
to pay out 2.25% but lowered to 2.15% recently. There are a few big red flags
about Wealthfront for me...

1.) They claim to offer FDIC-insured up to $1 million, yet on the official
FDIC website, and as far as I understand they only insure up to $250,000 per
account. How is $1M possible?

2.) With the 10 year and 2 year US treasury yields plumitting well below 2%
today, I don't understand how wealthfront can continue to offer 2.57% without
taking a loss.

~~~
throwaway13337
The way they and their competitor, betterment, work is that they distribute
your funds to a real bank or up to 4 of them for that 1m FDIC insurance.

The real risk I see using them is the money transition period from your
current bank to their partner banks while moving the funds. It's why I opted
for a traditional bank with high yield savings but not as high as theirs.

I'd be interested to know how they explain FDIC insurance during the
transitional period. I could be wrong and they have that covered, too.

~~~
tdhoot
It's not FDIC covered during the transitional period, and they don't say how
long the transitional period is either.

~~~
jakelazaroff
What is the transitional period? Is it that when you make a deposit, you're
actually transferring to Wealthfront, which distributes it to the real bank
accounts they keep your money in?

~~~
tdhoot
Yes, that's my understanding. But there's no guarantee that Wealthfront
transfers to the FDIC-insured bank accounts as soon as possible. For all we
know, Wealthfront could hold on to it for weeks.

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0x8BADF00D
The dopes that are saving in USD will pay a huge inflation tax. Same for the
bond holders (aka bag holders) too.

~~~
benj111
What's the alternative?

Stash it under the mattress so you don't make _any_ gains that can be taxed?

Save it in gold so you can be taxed as capital gains (unless you suffer a
capital loss)?

Save in stocks & shares so you can be taxed on your capital gains _and_
dividends? Good luck if you need to fix your boiler in the middle of a down
turn.

Bitcoin? That has proven itself to be a rock stable currency and you still
won't avoid losing your shirt / capital gains tax.

~~~
zMiller
Technically you would've 'lost your shirt' in bitcoin if you had bought it
during only 2 of the last 520+ months...

~~~
soVeryTired
But those two months happen to be the months where _everyone_ was buying.
That's what made the price rise so dramatically.

~~~
smileysteve
> happen to be the months where everyone was buying.

So, in many ways the way any market distortion happens. If everybody else is
buying, sell. If everybody else is selling, buy.

~~~
hpkuarg
> If everybody else is buying, sell. If everybody else is selling, buy.

As always, the market can remain irrational longer than you can remain
solvent.

