Today, we’re thrilled to introduce Wealthfront’s Automated Bond Ladder, an easy new way to earn a steady yield on your extra cash with zero state income taxes. Wealthfront’s Automated Bond Ladder invests in a portfolio of US Treasuries, which are exempt from state and local income taxes, so you can earn more—and keep more—than you would with most savings accounts and some CDs. Whether you’re looking for a way to earn safe interest on extra cash you don’t expect to need right away, protect and grow a windfall, or save for important future expenses, Wealthfront’s Automated Bond Ladder is a powerful tool to help you grow your wealth. And while a bond ladder can be a pain to manage manually (think spreadsheets and calendar reminders), Wealthfront lets you set one up in just a few clicks. 

Take advantage of current yields with no state income taxes

Bond ladders are a time-tested investing strategy designed to offer steady yield and manage interest rate risk. A bond ladder is a portfolio of bonds with different maturities, with portions (or “rungs”) which mature at regular intervals over time. As each bond matures, you’ll get your principal back, and it can then be reinvested into existing or new rungs. 

Why do this? One, ladders allow you to take advantage of current rates and earn a steady stream of interest. And two, ladders reduce your interest rate risk by offering diversification. Bonds, like stocks, respond to changes in interest rates and market conditions. When you hold a bond ladder with bonds of various maturities, you’re less exposed to interest rate risk than you would be if you owned a single bond. This can translate to more consistent returns. In a recent article comparing bond ladders to other bond strategies, the Wall Street Journal wrote: “The verdict: The bond-laddering portfolio provides more-stable returns over various interest-rate environments.”

Historically, the big drawback of bond ladders (or CD ladders, a similar strategy) has been that they are difficult and time-consuming to set up and manage—bond ladders require time, determination, and often, spreadsheets. Some traditional financial advisors will manage a ladder for you, but often charge a premium to do so. Wealthfront has completely automated the strategy, so we can find you great rates with absolutely none of the hassle for our same, low 0.25% advisory fee (which, for a limited time, we are waiving for your first six months).1 

We’ve built our Automated Bond Ladder with US Treasury bills and notes, which pay interest on a regular schedule and are exempt from state and local income taxes. State income taxes can be substantial: For example, the top marginal rate in California is currently 13.3% and the top marginal rate in New York is currently 10.9%. As a result, you may be able to keep significantly more of the interest you earn after taxes with US Treasuries than you would with the interest from a savings account or CD, depending on your state of residence and tax bracket. To understand how much you personally could benefit from the tax treatment of Treasuries, you can enter your details into our calculator

US Treasuries are essentially loans investors make to the US government and are backed by the full faith and credit of the US government, which means you are taking on next-to no risk to your principal (unless the US government defaults—which, to date, has never happened) if you hold to maturity. These investments are considered so safe that they are frequently used to represent the risk-free rate of return, or the amount of return you might expect to receive for taking on zero risk. 

To learn more about how we build Automated Bond Ladders, you can check out our white paper.

Getting started with an Automated Bond Ladder

To get started with an Automated Bond Ladder, visit our website or open our mobile app. Select an Automated Bond Ladder and choose your maximum maturity—anywhere from six months up to six years. Choosing a greater maximum maturity means you effectively lock in your yield for longer (which can be good if you expect interest rates to decrease), while a shorter maximum maturity allows you to take on less risk to your principal if you have to sell bonds before their maturity dates. A shorter maximum maturity is also less exposed to interest rate risk. Once you’ve chosen your maximum maturity, we’ll automatically identify which bonds to purchase and then build you a ladder that prioritizes high coupon payments and liquidity. As bonds mature or interest is paid, we’ll purchase new bonds, so that you don’t miss out on earning yield.

Wealthfront Automated Bond Ladder UI

You can add more funds to your Automated Bond Ladder at any time, and our software will automatically find and buy more bonds with great rates across your ladder rungs—no spreadsheets required. You can even build multiple bond ladders of different lengths to help you save for different goals. US Treasuries are highly liquid, so if you need to withdraw early, we’ll choose which bonds to sell in order to maintain a balanced ladder and also work to limit your tax exposure. Unlike with a CD, there are no penalties for selling before maturity, although you could lose some of your principal. 

Build long-term wealth on your own terms

Wealthfront’s Automated Bond Ladder is a first-of-its-kind product that automates the complex chore of building a bond ladder so you can easily take advantage of current yields and the state tax benefits of US Treasuries. We are delighted to make it available to you for the same, low 0.25% advisory fee we’ve always charged for our Automated Investing Accounts—and for a limited time, we’ll be waiving that fee for your first 6 months.1 

For maximum liquidity and a high 5.00% APY through our partner banks, we still suggest keeping your short-term savings in the Wealthfront Cash Account until you’re ready to invest. For long-term goals at least three to five years in the future, we suggest investing in an diversified portfolio of low-cost index funds like Wealthfront’s Classic portfolio, Socially Responsible portfolio, or Direct Indexing portfolio. And for situations where you want to earn safe interest on cash you don’t need right away, protect and grow a windfall, or save for future important expenses with very little risk to your principal, we’re proud to offer our Automated Bond Ladder. No matter what you’re saving for, Wealthfront has the right accounts to help you meet your goals with confidence. 

Subscribe to our blog
Please fill out this field.
You've successfully subscribed to our blog.

Disclosure

The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer or recommendation to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers, Wealthfront Brokerage or any affiliate endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Investing in US Treasuries involves risks, including but not limited to interest rate risk, credit risk, and market risk. While US Treasuries are considered to be among the safest investments, they are not entirely risk-free, and there is a potential for loss of principal. Returns on US Treasuries can also be affected by changes in the credit rating of the US government, although such occurrences are rare. Investors should consider their tolerance for these risks and their overall investment objectives before investing in US Treasuries. Past performance does not guarantee future results.

The yield earned from US Treasuries is exempt from state and local income taxes. However, interest income from Treasuries is subject to federal income tax. Tax treatment may vary depending on your individual circumstances. To understand implications for your specific financial situation, consult with a tax professional.

1 If you open an Automated Bond Ladder account by June 30, 2024, Wealthfront Advisers LLC will waive its standard advisory fee of 0.25% annually on the balance in your Automated Bond Ladder account for six (6) months from the date on which your account is first opened. Your fee waiver will be applied to the balance in your account as soon as the account is funded (i.e., on the first day the account contains a balance) and will be applied for six (6) months from your account opening date. This offer applies only to Automated Bond Ladder accounts; the fee waiver cannot be applied to any other Wealthfront accounts.  This offer is non-transferable and applies only to accounts opened by 11:59:59pm Pacific Time on June 30, 2024. If you close your Automated Bond Ladder account during the fee waiver period, you will forfeit the remainder of your fee waiver. Your fee waiver will be reflected in your monthly statement. Average yields for the Automated Bond Ladder reflect the deduction of Wealthfront’s standard 0.25% advisory fee. This offer is available to all prospective Automated Bond Ladder account holders, including clients who have previously participated in other Wealthfront account opening promotions.

Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and brokerage related products, including the Cash Account, are provided by Wealthfront Brokerage LLC, a Member of FINRA/SIPC.

Wealthfront, Wealthfront Advisers and Wealthfront Brokerage are wholly owned subsidiaries of Wealthfront Corporation.

Copyright 2024 Wealthfront Corporation. All rights reserved.