Betterment vs. Robinhood [2022]: Which Is Better for Beginners?

Both Betterment and Robinhood are investing apps that provide you with a suite of cash management tools. Find out which one is right for you.
Last updated Aug. 3, 2022 | By Lindsay Frankel
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If your emergency fund is stocked and your retirement account is maxed out, it could be time to start thinking about investing money. Although all investments come with risk, investing early and regularly could help you reach your long-term money goals and build a nest egg for retirement.

If you are thinking about investing in the stock market, Betterment and Robinhood are two investment apps worth considering. Here’s a look at how they work as well as their features and differences.

In this article

Betterment vs. Robinhood

Both Betterment and Robinhood let you start investing even if you don’t have a lot of money to put into the market. But there are some key differences that set these services apart.

Betterment
Robinhood
Minimum investment None None, or $2,000 (or 100% of the securities’ price, whichever is lower) if you want to invest on margin
Account fees
  • .25% annually for a Betterment Digital account
  • .40% annually for a Betterment Premium account
  • None with a basic Robinhood account
  • $5 per month for Robinhood Gold
Asset classes Stock and bond exchange-traded funds Stocks, exchange-traded funds, options, cryptocurrencies
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 2
  • FDIC-insured cash management account
  • Individual taxable accounts
Features
  • Socially responsible portfolio options
  • Earn 1.60% (as of Aug. 8, 2022) APY 3 with a cash reserve account with no minimum balance or fees 1
  • First stock free
  • Build a customized portfolio
  • Earn 1.00% (as of May 10, 2022) APY on uninvested cash through the brokerage cash sweep program
Distributions Automatically reinvested Automatically credited as cash or reinvested
Best for... Hands-off investors Hands-on investors
Visit Betterment Visit Robinhood

How does Betterment work?

Betterment is a robo-advisor that allows you to invest in a portfolio of low-cost ETFs. When you sign up for a Betterment account, the company will ask you about your risk tolerance, your financial goals, and when you’ll need to access your money. You won’t need to pick stocks or manage your portfolio because Betterment’s sophisticated algorithm does those things on your behalf, making it an option worth considering for new investors who prefer a more hands-off investment strategy.

Betterment currently offers two plan options for investors. Its Digital plan has an annual fee of just .25% per year, and there’s no minimum balance requirement. This plan includes convenient features like automatic rebalancing, tax-loss harvesting, and dividend reinvestment. The company also offers a premium account, which requires a minimum account balance of $100,000 and comes with a .40% annual fee. Its premium account comes with added features like unlimited advice from Betterment’s team of certified financial planners.

In addition to taxable investment accounts, Betterment also offers a checking account, high-yield cash reserve account, and several options for tax-advantaged retirement accounts. If you’re not sure where to start, Betterment recommends opening a cash reserve account, which earns a variable APY of 1.60% (as of Aug. 8, 2022), and then selecting your financial goals to get personalized investment suggestions.

Read our Betterment review for more details.

>> See our picks for the best robo-advisors

How does Robinhood work?

When you invest with Robinhood, it’s a more hands-on experience than you’d get with Betterment or another robo-advisor. You can choose to purchase fractional shares of more than 5,000 stocks listed in U.S. exchanges, 650 global stocks, and ETFs. If you are interested in how to buy cryptocurrency, you may also have the option to invest in these alternative assets with a Robinhood Crypto account, depending on where you live.

Robinhood offers commission-free stock trading, and it won’t charge you to open a basic investment account and it doesn’t charge management fees, either. If you’re looking for more advanced investing features, you also have the option to upgrade to a Robinhood Gold account for $5 per month. With Robinhood Gold, you’ll be able to make larger deposits, access funds faster, trade stocks on margin, and view in-depth research reports.

In addition to its investment accounts, Robinhood also offers a cash management account, which allows you to access your paycheck, pay bills, and send checks. It comes with a debit card with free Allpoint and MoneyPass ATM access, there are no fees or account minimums, and you can earn 1.00% (as of May 10, 2022) APY on your uninvested cash.

Read our Robinhood review for more details.

>> See our picks for the best investment apps

What both investment platforms excel at

Both platforms allow you to invest in fractional shares, though Betterment does so indirectly. With Robinhood, you can purchase fractional shares of company stock. With Betterment, you’re investing in ETFs, but your investment mix could include fractional shares. Fractional shares can help you build a more diversified portfolio with a smaller investment than what you’d typically need to invest in full shares.

Both Betterment and Robinhood are relatively low-cost options, compared with actively managed mutual fund portfolios with traditional brokerages, which may require high investment minimums and typically charge larger fees. A basic investment account with Robinhood is free, and Betterment charges a .25% management fee for its Digital account.

In addition to their desktop platforms, Robinhood and Betterment have well-reviewed mobile apps available for Android and Apple devices, so you can easily manage your account no matter where you are. And whether you’re a new or experienced investor, both investing apps offer a wealth of free financial resources to help you learn about investing. In addition to their investment products, both companies also offer checking and savings products for holistic money management.

Robinhood Benefits

  • When you sign up, a surprise stock appears in your account
  • Commission-free trading with no account minimums
  • Trade stocks, options, and cryptocurrencies

6 important differences between Betterment and Robinhood

Although both services could be a great option if you’re looking to start investing for a relatively low cost, there are several key differences between Robinhood and Betterment:

  1. Choosing investments: Although you have the option to handpick your stocks and ETFs with Robinhood, you can’t invest in individual stocks or funds with Betterment. Instead, you choose your level of risk and investing style, and Betterment builds a portfolio of low-cost ETFs based on your preferences. If you prefer a more hands-off approach to investing, Betterment could be the better choice for you.
  2. Automatic rebalancing: Betterment offers automatic rebalancing, so if your portfolio deviates from your target allocations, Betterment will automatically rebalance it for you. Robinhood does not offer automatic rebalancing, so if you choose to open an account, you’ll need to manage your portfolio manually.
  3. Account types: Betterment offers several tax-advantaged retirement account options, including traditional and Roth IRAs, whereas Robinhood offers only taxable investment accounts. Both services have a checking and savings component.
  4. Customer support: If you have general questions, you can reach Betterment customer support specialists by phone or email, five days per week. Robinhood offers an online form for general customer service inquiries, but there's no contact phone number available on its website.
  5. Financial advisors: Betterment gives you the option of buying a financial advice package with its Digital plan. You can also get ongoing financial planning advice from human advisors when you sign up for a Betterment Premium account. Robinhood does not offer clear information about whether account holders have the option to work with a human.
  6. Available securities: Betterment’s ETF investment mix could include bonds, while Robinhood does not allow you to invest in bonds either directly or indirectly. Robinhood offers the option to invest in cryptocurrencies with a Robinhood Crypto account, but Betterment does not offer this option.

Which investment platform should you choose?

If you like the idea of being able to pick and choose companies to invest in, and you have the knowledge and experience to be able to build a balanced portfolio, Robinhood could be a good choice for you. If you prefer passive investing or are new to investing, Betterment might be the better investing platform between the two.

Although Betterment does come with a management fee of either .25% or .40%, depending on the account you choose, paying the fee takes the burden of portfolio management off of your shoulders, which could be a good thing depending on your personal investing strategy. Betterment estimates an increased long-term return of 1.48% annually from using its robo-advisor, which could help alleviate potential concerns about its management fees.

Also consider the type of investment options that best meets your needs. For instance, if you’re looking to open a retirement account, Betterment is likely a better option than Robinhood. If you want to buy and sell cryptocurrencies, Robinhood could be a good choice.

Betterment Benefits

  • Your financial life all in one place
  • Customized portfolio recommendations
  • Personalized investing for your specific goals

FAQs

Which is better, Betterment or Robinhood?

The better option for you depends mostly on your investment goals and how hands-on you want to be with your investment portfolio. If you want a research-based portfolio customized to your risk level and automatic rebalancing, you might want to consider investing money with Betterment. If you want to be able to pick and choose your investments, Robinhood might meet your needs.

Is it smart to use Robinhood?

If you feel comfortable selecting securities manually, Robinhood could potentially be a smart choice. But given that Robinhood users are responsible for building their own portfolios, this platform is likely a better option for those who are comfortable with and knowledgeable about the market.

Can you lose money with Betterment?

All investments come with risks, and it’s possible to lose money with Betterment. However, Betterment provides you with a diversified portfolio backed by Nobel Prize-winning investment research. Diversification could provide a measure of protection against market volatility, and it’s also possible that your portfolio might potentially grow over time.

Are Betterment and Robinhood good for beginner investors?

Both Betterment and Robinhood offer relatively low fees and let you start investing without much money, which could be a great way to break into the market. But if you’re new to investing, Betterment might be the better choice for you, as its robo-advisor tool builds and rebalances your portfolio on your behalf.

Bottom line

Both Betterment and Robinhood offer investors an opportunity to break into the market with a small investment at a low cost, but they meet very different needs and investing styles. If you’re still not sure which investment platform is right for you, check out our picks for the best brokerage accounts and best investment apps to see the full range of options.

Disclaimer: All rates and fees are accurate as of Aug. 2, 2022.

Robinhood Benefits

  • When you sign up, a surprise stock appears in your account
  • Commission-free trading with no account minimums
  • Trade stocks, options, and cryptocurrencies

Author Details

Lindsay Frankel Lindsay Frankel is a Denver-based freelance writer who specializes in credit cards, travel, budgeting/saving, and shopping. She has been featured in several finance publications, including LendingTree. When she's not writing, you can find her enjoying the great outdoors, playing music, or cuddling with her rescue pup.