Betterment vs Charles Schwab

  • Minimal fees
  • Portfolio rebalancing
  • Tax-loss harvesting
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  • No fixed management charges
  • Well-diversified portfolios with multiple asset classes
  • Automatic portfolio rebalancing
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A growing number of brokerages offer robo-advisors to compile automated portfolios for investors who don’t want to spend their time researching individual stocks and funds. With robo-advisors surpassing the $1.4 trillion mark, it should come as no surprise that even traditional brokerages have entered the arena.

Charles Schwab is the largest brokerage in the U.S. and is known worldwide. Betterment was one of the first robo-advisors to offer these services to its clients.

Betterment and Schwab represent the ultimate contrast between traditional brokerages and next-generation platforms, so how do they compare?

Betterment Overview

Since launching in 2008, Betterment caters to the investment needs of more than 650,000 clients. Its consistent growth pattern results from its commitment to keeping updated on the latest market and investor trends.

Read our detailed Betterment review, and you’ll see that at Modest Money, we believe this is one of the best choices for new investors. From socially responsible investing portfolios to industry-low fees, Betterment is the perfect choice for people who want to enter the markets for the first time.

To get started, all you must do is create an account and answer some questions on your income, risk tolerance, and financial goals. Based on your answers, Betterment will provide you with several recommendations for putting your money.

Unlike some robo-advisors, Betterment doesn’t require you to follow their recommendations or choose from a narrow range of choices. You can also build your own portfolio if you’re a more confident investor.

Betterment is the no-nonsense, no-hassle approach to investing, and this full-blown robo-advisor could help you make a profitable return from investing.

Betterment Details

Account Minimum$0
Management Fees0.25%/0.40%
Account TypesBrokerage, Saving, Checking, Trust, Roth IRA, Traditional IRA, and SEP IRA
Investment TypeExchange-Traded Funds (ETFs)

Betterment adopts a low-fee approach to investing. Departing from traditional brokerages, you don’t need to invest a minimum amount in opening an account or maintaining a minimum balance to continue investing.

Set your desired portfolio allocation, and Betterment will maintain it through its automated portfolio rebalancing feature. Plus, you can save money on your taxes every year with tax-loss harvesting, which is something offered by few other robo-advisors.

Betterment offers several portfolios for you to take advantage of, including ones dedicated to socially responsible investing.

If you’re looking to keep investing simple, investing with Betterment could be the ideal choice for you.

Betterment Fees

One of the main draws of robo-advisors is the opportunity to start investing with a minimal amount of money. There’s no account minimum with Betterment, so if all you have is $5, you can get started.

Most Betterment users do so under the Betterment Digital program. For these members, Betterment charges a 0.25% fee per year. Anyone who has more than $100,000 invested in the platform qualifies for the Betterment Premium program, which comes with a 0.40% annual management fee.

Betterment Premium members gain free access to CFP professionals. On the other hand, Betterment Digital users will need to pay $199 per 45-minute call to access professional advice tailored to their financial situations.

The only other fee you can expect to pay is an expense ratio on specific ETFs. These fees come from the ETF providers themselves and range from 0.07% to 0.15%, roughly the industry standard.

If you’re looking for a no-frills service to invest with, Betterment might be the ideal solution for you.

Betterment Pros

  • Minimal fees
  • Portfolio rebalancing
  • Tax-loss harvesting

Betterment Cons

  • Limited asset types to invest in
  • Lack of customization
  • Barebones investment platform

You won’t find lots of advanced features when you invest with Betterment, but for beginners, this is for the best. Learn more from our in-depth review on Betterment to decide if this is the platform for you.

Schwab Overview

Unlike Betterment, Schwab is a traditional brokerage offering robo-advisors as a supplemental service. Currently, they hold more than $7.4 trillion in assets under management. The critical difference between the two is Schwab is so much more than a robo-advisor, thus you can gain access to more traditional brokerage services.

Furthermore, Schwab provides access to more investment options, such as mutual funds, REITs, and options. If you’re looking to expand beyond a limited range of stocks and ETFs, Schwab is likely the better proposition.

To get started with Schwab’s robo-advisor, you’ll follow the same process as Betterment. You’ll be asked about your income, financial goals, and risk tolerance. They will come up with multiple options based on your answers.

Like Betterment, Schwab uses ETFs to create diversified portfolios built through their robo-advisor. With automatic portfolio rebalancing included, you do have the option of leaving your portfolio on autopilot.

As well as tax-loss harvesting and paid access to qualified financial advisors, these two platforms have more in common than many people think.

Schwab Details

Account Minimum$5,000
Management Fees$0
Account TypesAll account types supported
Investment TypeStocks, bonds, ETFs, mutual funds, options, and more

In the debate over Betterment vs Charles Schwab, it’s clear that the traditional brokerage wins out when it comes to the account types supported and the investment assets available. They are the gold standard when it comes to comprehensive investing services. Regardless of your situation, they will have the account type and investment for you.

Schwab’s automated portfolio rebalancing feature operates using different parameters to Betterment’s. Whereas Betterment only readjusts when your portfolio reaches a certain amount of drift, Schwab rebalances instantly.

The Schwab Intelligent Portfolio takes advantage of every tax-advantaged technique in the book to save you money. By harvesting losses to offset gains and reduce capital gains taxes, their intricate approach to tax savings is a significant advantage of using the platform.

Another major advantage of using Schwab is its customer service. While Betterment offers a limited amount of customer service, Schwab provides 24/7 customer service to all its members. If you need help with something, they’re always available to give you a hand.

While Schwab has a lot in common with Betterment, its status as a traditional brokerage means you gain access to more features than you would with Betterment.

Schwab Fees

Reading the above sections would be easy to assume that Schwab is the clear winner. Where Schwab falls is in its lack of accessibility. True to its traditional brokerage moniker, Schwab charges a massive $5,000 minimum to open an account with them.

Plus, if you want access to qualified financial planners, the premium service costs a $300 setup fee and an additional $30 per month charge.

There are also ETF expense ratios to consider—these range from 0.08% to 0.15%, which match up with Betterment.

Overall, the fees levied by Schwab are high, and this will freeze out thousands of investors who don’t have a large chunk in savings to open an account.

Schwab Pros

  • No fixed management charges
  • Well-diversified portfolios with multiple asset classes
  • Automatic portfolio rebalancing

Schwab Cons

  • No access to environmentally sustainable portfolios
  • High fees
  • Costly premium service

If you’re searching for a more comprehensive brokerage, Schwab could be the platform for you. Make sure you look up Charles Schwab reviews for more information on how the platform works.

Betterment vs. Schwab Comparison

FeatureBettermentSchwab
Min. Investment$0$5,000
Management Fees0.25% (Digital); 0.40% (Premium)None for standard, $30 per month for premium
Avg. ETF Expense Ratio0.07%-0.15%0.08%-0.15%
Account TypesBrokerage, Saving, Checking, Trust, Roth IRA, Traditional IRA, and SEP IRAAll
Tax-Loss HarvestingAvailableAvailable
Financial Advisor Fee$199 (Free with Premium)Free with Premium
Best ForSpecialized PortfoliosHigher Net-Worth Investors

Betterment vs. Schwab: Which One is Right for You?

Schwab and Betterment may be at separate ends of the spectrum, but they have more in common than you may initially think. Both have essential features, such as comprehensive goal setting, automatic portfolio rebalancing, and tax-loss harvesting.

Schwab wins out in the account types offered and the asset classes on offer. If you’re searching for a more diversified portfolio, Schwab is well worth looking into.

On the other hand, the problem with Schwab is its high fees. Unless you have $5,000 to invest immediately, you won’t be able to create an account and begin investing. Its premium management charges also start to add up in the long term, even if you gain access to free financial advice.

Betterment is an excellent choice to start with, but if you’re a more experienced investor, the added costs of Charles Schwab may be a worthwhile expense. Truthfully, they have more in common than they do in contrast.

Overall, for the investor who wants to start from scratch and begin investing, there’s no better choice than Betterment. This is the world’s leading robo-advisor and was partially responsible for making automated portfolios powered by artificial intelligence a reliable way to go in the first place.

Create an account with Betterment and get up to one year of free investing.

Bob Haegele

About the Author:

Bob Haegele is a personal finance writer, entrepreneur, and dog walker. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow, Modest Money, and Blooming Wealth. You can also find him contributing to popular websites such as Yahoo! Finance, MSN Money, and GOBankingRates. You can see more of his work on Muck Rack and Contently, or connect with him on LinkedIn.