How Does Betterment Work

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

With both Betterment and Robinhood, you get access to a variety of financial management tools. Determine which is best for you. Investing money may be a good idea if you have a sizable emergency reserve and a sizable retirement account. When it comes to long-term financial objectives and building a nest egg for retirement, early and frequent investment can help you achieve them.

A stock market investor might examine Betterment and Robinhood as two investment applications. As a comparison, here’s a look at how they function and the features and differences between them.

Robinhood and Betterment

If you don’t have a lot of money to invest, neither Betterment nor Robinhood is a problem. This service is distinct from the others because of a few important features. Here are the details below:


  • Minimum Investment. None, or $2,000 (or 100% of the securities’ price, whichever is lower) if you want to invest on a margin
  • Account Fees. None with a basic Robinhood account & $5 per month for Robinhood Gold
  • Asset Classes. Stocks, exchange-traded funds, options, cryptocurrencies
  • Account Types Available. FDIC-insured cash management account and Individual taxable accounts.
  • Features. First stock free & Build a customized portfolio
  • Distributions. Automatically credited as cash or reinvested 


  • Minimum Investment. None
  • Account Fees. .25% annually for a Betterment Digital account & 40% annually for a Betterment Premium account
  • Asset Classes. Stock and bond exchange-traded funds
  • Account Types Available
    • Trust accounts
    • Joint taxable accounts
    • Individual taxable accounts
    • Inherited IRA
    • SEP IRA
    • Traditional IRA
    • Roth IRA
    • FDIC-insured checking account
    • FDIC-insured cash reserve savings account
  • Features. Socially responsible portfolio options & Earn 0.30% APY (as of Mar. 22, 2021) on your uninvested cash with no minimum balance or fees
  • Distributions. Automatically credited as cash or reinvested

What is the Betterment business model?

If you’re looking for an easy way to invest in a low-cost ETF portfolio, Betterment is the best option. The Betterment firm will ask you a number of questions about your financial situation, including how much risk you are willing to take, what your financial goals are, and when you’ll need access to your money. Betterment’s clever algorithm takes care of the stock selection and portfolio management for you, so it’s a viable alternative for beginning investors who want a less hands-on approach to investing.

A total of two investment plans are now available via Betterment. There is no minimum balance requirement for its Digital plan, which has a yearly fee of just.25 percent. Rebalancing and dividend reinvestment are just some of the elements that make this plan so easy to use.

There is also a premium account offered by the corporation, but this one comes with an annual cost of 0.40% and needs a minimum account balance of $100,000. Additional services, such as unrestricted guidance from Betterment’s licensed financial advisers, are available to users with premium accounts.

A savings account, high-yield cash reserve, and a variety of tax-advantaged retirement account options are also available through Betterment. If you’re looking for personalized investment advice, Betterment recommends opening a cash reserve account with a variable annual percentage yield (APY) of 0.010 percent (as of October 31, 2021).

Robinhood’s process of operation is as follows.

When compared to Betterment or another Robo-advisor, investing with Robinhood offers a more personalized experience. Fractional shares can be purchased in more than 5,000 US equities, 650 overseas companies, and ETFs. With a Robinhood Crypto account, depending on your location, you may invest in these digital assets if you want to learn how to acquire cryptocurrency.

With Robinhood, you don’t have to pay a fee to trade stocks, and you don’t even have to pay to register an investing account. There’s also the option to upgrade to Robinhood Gold, which costs $5 a month if you want more advanced features. The Gold version of Robinhood allows you to make greater deposits, access cash faster, trade stocks on leverage, and access in-depth research reports.

Additionally, Robinhood offers a cash management account that allows you to access your pay, pay bills, and send checks. Free Allpoint and MoneyPass ATM access and no fees or account minimums are included with this debit card. Uninvested cash earns 30% APY (as of January 29, 2020).

Both investing platforms thrive in certain aspects.

Investment in fractional shares is possible on both platforms; Betterment does it in a more indirect manner. You may buy fractional shares of a company’s stock using Robinhood. Betterment allows you to invest in ETFs, but you may also use fractional shares in your portfolio. If you want to diversify your investment portfolio, but you don’t want to invest as much as you would in full shares, you may use fractional shares.

In contrast to actively managed mutual fund portfolios that need hefty investment minimums and often incur greater fees from a traditional brokerage, Betterment and Robinhood are relatively low-cost solutions. Robinhood offers a free basic investing account, while Betterment charges a.25 percent management fee for its Digital account.

You can access your account on the go with Robinhood and Betterment’s Android and Apple mobile applications, which are both highly rated and easy to use. When it comes to learning how to invest, both apps include a lot of free information to help you along the way. Both organizations provide a full range of financial services, including checking and savings accounts.

6 key differences between Betterment and Robinhood

Given the fact that both Robinhood and Betterment provide a low-cost way to begin investing, there are a few important distinctions between the two services:

  1. When it comes to picking stocks and ETFs, you can do so with Robinhood, but with Betterment, you can’t invest in specific equities or funds. As a result, Betterment creates a portfolio of low-cost ETFs depending on your risk tolerance and investment style. Because of their hands-off approach to investing, Betterment may be the best option for you.
  2. In the event that your portfolio’s allocations depart from your desired ones, Betterment will automatically correct the imbalance for you. If you decide to register an account with Robinhood, you will have to maintain your portfolio yourself.
  3. Both Betterment and Robinhood provide a wide range of account types, however, Betterment has IRAs, while Robinhood only has taxable investment accounts. There is checking and a savings component to both services.
  4. Five days a week, Betterment customer service representatives are available to answer your queries through phone or email. There is no phone number listed on Robinhood’s website for typical customer support questions.
  5. Betterment’s Digital plan includes a financial advising package, which you may purchase for an additional fee. Human advisers are also available for continuous financial planning guidance if you upgrade to a Betterment Premium account. Account-holders aren’t given any information regarding the possibility of interacting with a human representative by Robinhood.
  6. Betterment’s ETF investment mix might contain bonds, however, Robinhood does not enable you to invest in bonds either directly or via indirect investments. With a Robinhood Crypto account, you may invest in cryptocurrencies, but Betterment does not.

Which platform should you choose for investing?

It’s possible that Robinhood is a suitable fit if you appreciate the concept of being able to choose which firms you invest in and have the knowledge and expertise necessary to create a well-rounded portfolio. You may choose Betterment if you are new to investing or if you prefer a passive approach to invest in comparison to Wealthfront.

Although Betterment charges a maintenance fee of either. Twenty-five percent or. 40 percent, depending on the account you select, paying the charge removes the responsibility of portfolio management from your shoulders urn of 1.48% annually from using its Robo-advisor, which could help alleviate potential concerns about its management fees.

Consider the investment possibilities that are most suited to your situation. Consider Betterment instead of Robinhood if you’re wanting to start a retirement account. When it comes to trading bitcoins, Robinhood is a viable option.

Bottom Line

When it comes to breaking into the market, both Betterment and Robinhood provide low-cost entry points, but their offerings address distinct requirements and investing styles. The top brokerage accounts and investment applications we’ve found will help shed light on all of your available alternatives if you’re still unsure.

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