How Wealthfront's new high-yield savings account works

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.Wealthfront's new Cash Account is yet another high-yield savings account. Competition in this field is leading to higher interest rates and lower fees, so now's the time to jump on board.With a 2.29% annual percentage yield and FDIC insurance of up to $1 million, Wealthfront's Cash Account offers many benefits.The account is fee-free and requires a minimum opening deposit of $1, making it accessible to all savers.Currently, Business Insider readers who sign up for a Wealthfront investment account will receive their first $5,000 managed for free in that account in perpetuity.High-yield savings accounts with no fees are the way to go for your short-term savings and emergency fund. Mine has already earned me $70 in interest in just three months.It took me longer in adulthood than I'd like to admit to finally build a habit of saving money, but once I did, it stuck. While I'd love to tell you that I tracked every last penny I spent, the truth of how I boosted my savings is much simpler: automatic deposits, and high interest rates.I opened a savings account with an online bank that offers high interest rates and no fees, and I set up automatic deposits into that account from my paycheck. This means the money I intend to save never even makes it to my checking account, making it impossible for me to spend it impulsively.My savings account also has a 2.20% interest rate, far higher than the 0.01% rate my old bank offered. At my old bank, my monthly deposits from interest were pennies. With my new high-yield savings account, I get upward of $30 every month. Sure, I'm not going to retire early on those returns, but getting a bonus each month for growing my savings encourages me to keep going.Thanks to the popularity of online banks like Marcus and Ally and high-yield savings accounts, new options are cropping up everywhere, and competition is driving rates up and pushing fees down. Wealthfront, one of the most popular robo-advisors — online applications that automate investing to make it easy and more accessible — is the latest company to jump on the high-yield-savings bandwagon. While it's not called it a high-yield savings account, Wealthfront's new Cash Account is pretty much identical to its competitors in that arena — and it might be leading the pack in helping you make the most of your money.How does Wealthfront's Cash Account work？The name Cash Account might be confusing to some, but this is essentially a high-yield savings account. That means you can transfer money into and out of the account for free whenever you want, and you'll get some of the highest rates available for savings accounts, which can make a difference when you're trying to build up your savings.You won't have to pay any fees with this account either, regardless of your balance, and you need to deposit only $1 to get started.I'm a big advocate of high-yield savings accounts. Three months ago, I switched from a traditional bank to a high-yield savings account with a popular online bank, and I've already made $70 in interest. Seeing that money deposited in my account feels like receiving a reward. And building in rewards for saving money can rewire your brain to build new savings habits.Wealthfront describes its vision for the account as being “self-driving money,” which is just a fun way of saying it will help you automate your finances.Read more: Most traditional investment advice fails to take women's pay gaps and longer lifespans into account — Ellevest is changing thatLots of companies doing this are relatively new but wildly successful in the financial technology, or fintech, industry. New online banks offer fee-free checking and savings accounts that can be set up in minutes and even be configured to split direct deposits from your employer among various accounts. Mobile banking makes it easy to automate bill payments and paying off debt. And robo-advisors like Wealthfront even automate your investments for you.This self-driving-money revolution is essentially taking what wealthy folks have always had in the form of spendy financial planners — the ability to “set it and forget it” with their money and still experience good returns — and making that available to the masses.Wealthfront says the Cash Account is now open to current Wealthfront investing members as well as new Wealthfront clients. The best features of Wealthfront's Cash Account2.29% annual percentage yield (as of April 26)No fees$1 minimum opening depositFDIC-insured up to $1 millionRate hunters might be tempted to join Wealthfront when they see this account's APY — 2.29% is higher than just about any other fee-free savings account out there, including high-yield accounts from other online banks.This account is fee-free, which is a must, as monthly service fees — even when you can waive them by maintaining a minimum daily balance — can end up eating into your savings and canceling out any interest you earn. It's suitable for both seasoned savers and folks who are just getting started, since you have to maintain a minimum balance of only $1 to open an account and earn interest.Finally, holders of the Cash Account are insured by the FDIC for up to $1 million, which is significantly higher than the $250,000 limit available at traditional banks. Wealthfront's achieves this by spreading cash deposits across four different banks. If you already have a savings account at one of those banks, you won't qualify for more than $250,000 in total FDIC insurance from that particular bank. Biggest flawsOnline onlyNo ATM cardWealthfront isn't your traditional brick-and-mortar bank, but an online-only investment service that is expanding into new services with the Cash Account. You don't have to worry about your money — online banks have been around for a while now, and as long as they're FDIC-insured, they're safe. But people who prefer to do their banking in person or aren't as comfortable with online banking might prefer to bank elsewhere.Some savings accounts come with an ATM card so you can easily access your funds, like in case of an emergency. Wealthfront's Cash Account does not, and since it doesn't offer checking-account options, the only way to withdraw your money is by transferring it to an outside bank account, meaning it would be about one to three days before you receive your money, or even longer if you're transferring the funds to a bank account that hasn't been verified and linked to your Cash Account.I like having a savings account that doesn't offer immediate access to my funds, as it discourages me from dipping into my savings for unnecessary purchases. If I ever need money for an emergency, I can always use my credit card. If you're worried about not having quick access to cash in an emergency, you could always keep a small portion of your savings in an account linked to your checking account.The best way to use Wealthfront's Cash AccountUse Wealthfront's Cash Account for:Your emergency savings fund.Short-term savings goals.Money you don't need to access regularly.Don't use Wealthfront's Cash Account for:Your retirement fund.Long-term savings goals.Money you need to access regularly.Like other high-yield savings accounts, Wealthfront's Cash Account offers the best returns you can get on money you can access easily. It's also a low-risk place to park your cash.This makes it a great option for your short-term savings goals and emergency fund. I like to use savings accounts for money I might need to access in the next five years.For longer-term savings goals, I prefer options with higher returns. Certificates of deposit lock up your money for a specified period (usually one to six years) but have higher interest rates. As for your retirement savings, even the best high-yield savings accounts won't come close to competing with the average returns from a long-term investment strategy or a tax-advantaged retirement account like an IRA or a 401(k).Finally, you don't want to keep money you plan to use regularly in a savings account — keep that in your checking account. Not only do checking accounts offer easier access to your money, but most savings accounts allow only six easy withdrawals a month before you start racking up fees.RecapWealthfront is shaping up to be one of the best options for your savings with its new Cash Account. It offers one of the highest interest rates, with no fees and with a minimum-balance requirement that anyone can maintain.Given that switching my bank accounts helped me drastically improve my savings habits, I'd definitely recommend high-yield savings accounts, whether with Wealthfront or another low-fee online bank. By the end of this year, I'll have earned enough interest to cover a flight to Europe, which makes cutting back on shopping to boost my savings a lot more rewarding.Learn more and open a Wealthfront Cash Account here.