{"id":9942,"date":"2022-08-31T14:06:34","date_gmt":"2022-08-31T21:06:34","guid":{"rendered":"http:\/\/canary.kcprod.info/blog\/?p=9942"},"modified":"2025-03-07T16:51:32","modified_gmt":"2025-03-08T00:51:32","slug":"why-is-wealthfront-cash-account-apy-so-high","status":"publish","type":"post","link":"https:\/\/canary.kcprod.info/blog\/why-is-wealthfront-cash-account-apy-so-high\/","title":{"rendered":"Why Is the Wealthfront Cash Account APY So High?"},"content":{"rendered":"\n

Note: As of January 30, 2026, the Wealthfront Cash Account has a 3.30% APY. Read more about it here<\/a>\n.<\/em><\/p>\n\n\n\n

We all know that when it comes to earning interest on your cash, more is better. But not all financial institutions pay the same rate\u2014not even close. Since we launched the Wealthfront Cash Account<\/a> back in early 2019, many clients have asked us how we\u2019re able to offer access to\u00a0 a rate that\u2019s so much higher than what most other financial institutions offer. The answer is simple: those institutions are able<\/em> to pay a high rate. They just don\u2019t.<\/p>\n\n\n\n

In this post, we\u2019ll break down how the high APY on the Wealthfront Cash Account (which is currently 3.30%) does what most financial institutions refuse to do.\u00a0<\/p>\n\n\n\n

Most banks don\u2019t share what they earn on your deposits<\/h2>\n\n\n\n

To understand why many banks could<\/em> pay you more interest, you need to understand how they make money. Consumer-focused banks use your deposits to make loans\u2014meaning that their profits are largely determined by the interest earned on the loans they offer to consumers. Commonly, these loans are home equity lines of credit, sometimes called HELOCs. A bank\u2019s profit is the interest it earns on those loans minus the interest it pays on deposit accounts. Profit margins grow when the interest rate charged on loans goes up faster than the interest rate paid on deposits.<\/p>\n\n\n\n

The chart below shows an example of this phenomenon at work in 2022 so far. The purple bars, which have been trending up this year, show average HELOC rates each month since the start of this year. The pale yellow bars which remain close to flat but also trend up slightly, show average savings account rates each month over the same time period. The gap between the height of the purple and pale yellow bars shows profit margin, which is obviously widening. In other words, many banks are increasing the interest rate they charge you to borrow while declining to pay you more for your deposits.\u00a0<\/p>\n\n\n\n

\"Chart
Source: Business Insider, DepositAccounts.com<\/figcaption><\/figure>\n\n\n\n

It\u2019s also illuminating to compare the federal funds rate with the average savings account APY\u2014this comparison tells you how much money banks are making when they loan out your money to other financial institutions. The federal funds rate is the rate at which banks loan money to one another, and it falls within a target range set by the Federal Reserve\u2019s Federal Open Market Committee (FOMC). The FOMC has raised the target range for the federal funds rate four times so far in 2022 in an effort to combat inflation. When the fed funds rate goes up, banks earn more when they loan out your deposits, so in theory they can pass along at least a chunk of that increase to you. In practice, this isn\u2019t usually the case. As you can see in the chart below, the average savings account APY has barely budged in 2022 even though the target range for the federal funds rate has increased dramatically.<\/p>\n\n\n\n

\"Chart
Source: DepositAccounts.com, Federal Reserve<\/figcaption><\/figure>\n\n\n\n

Why do banks do this? We believe many banks pay you a low rate on your deposits because they\u2019ve learned they can generally get away with it. Back around the start of the 2008 financial crisis, banks lowered interest rates to nearly zero and learned that they didn\u2019t lose depositors. As a result, even when rates go up, many banks tend not to pass that along to clients.<\/p>\n\n\n\n

You can see this trend even more clearly in the table below, which shows each increase in the target range for the federal funds rate in 2022, along with the percentage of that increase that Wealthfront, Ally (a popular high-yield savings account), and the average savings account passed along to depositors in the 14 days following the FOMC meeting, rounded to the nearest basis point. Keep in mind that Ally tends to offer an APY that far exceeds the national average for a savings account, but they still don\u2019t share as much of each increase with their clients as we do. In our analysis, we found that they haven\u2019t even shared half<\/em> of any given increase with clients in 2022 in the 14 days following a FOMC meeting, although it\u2019s worth noting that they do raise rates outside that 14-day window in between meetings. <\/p>\n\n\n\n

\"\"\/<\/figure>\n\n\n\n

Source: DepositAccounts.com, Federal Reserve<\/p>\n\n\n\n

The takeaway: Not only does the Wealthfront Cash Account currently have one of the highest APYs for cash on the market, provided by our partner banks\u2014it also has a proven track record of passing along a large portion of every federal funds rate increase since the account\u2019s inception in 2019.\u00a0<\/p>\n\n\n\n

You might wonder why Wealthfront doesn\u2019t always pass along 100% of every fed funds rate increase. The answer relates to how we make money on the Cash Account, which is on the modest spread between what our partner banks (where we deposit your cash) pay us and what you are paid. As you likely know, Wealthfront partners with multiple banks to offer you a high APY on your cash\u2013\u2013and that APY is highly dependent on the rate those banks pay us for deposits. The rate we get from our partner banks varies based on the federal funds rate and how much of a premium they are willing to pay for additional deposits. Lately, that premium has been decreasing, so we have needed to raise our rates a little more slowly than the fed funds rate has gone up in order to keep our spread roughly the same. However, as the chart above makes clear, we still manage to pass along more than our competitors\u2014often a lot<\/em> more.\u00a0<\/p>\n\n\n\n

Wealthfront helps you reliably earn more on your cash<\/h2>\n\n\n\n

At the end of the day, we know you have a lot of options when it comes to deciding where to keep your cash. We believe the Wealthfront Cash Account<\/a> is an ideal place for your short-term savings<\/a> whether you\u2019re building an emergency fund<\/a>, saving up for a home down payment, or just want to help your short-term cash grow until you\u2019re ready to invest. That\u2019s because the Cash Account provides access to:<\/p>\n\n\n\n