Betterment vs. Robinhood: Which Broker Is Right for You? | The Motley Fool (2024)

If you're looking to start investing, there's some good news. There have never been more easy-to-use investment platforms specifically designed to make the process easier for newer investors.

Two such investment platforms are Betterment and Robinhood, both of which are designed to make it as easy as possible to start investing. However, they are intended for two very different types of investment strategies. In this Betterment vs. Robinhood comparison, we'll take a closer look at both platforms and what they have to offer, so you can decide if one of them is right for you.

When looking at the fee structure of these two brokers, it isn't exactly an apples-to-apples comparison. Betterment is a robo-advisor and Robinhood is a stock trading platform at its core, so the fees they charge investors aren't exactly for the same services.

With that said, both are notorious for their low fee structures.

For its standard automated investing product, Betterment charges a management fee of $4 monthly or 0.25% yearly. The 0.25% option is expressed as an annualized percentage of assets in your account. In other words, if you have $10,000 in a Betterment account, your annual investment fees will be $25. This is significantly lower than you're likely to pay a human financial advisor, where the typical fee is in the neighborhood of 1%. The company also has a premium product available to high-balance accounts that has a management fee of 0.40% but also offers access to real-live Certified Financial Planners™.

On the other hand, Robinhood pioneered $0 commission stock trading years ago, and is widely credited with moving the entire brokerage industry toward free trades. It remains one of the only places investors can trade options without paying any commissions, and also offers free cryptocurrency trading.

Betterment offers ETF investing and can purchase fractional shares of its ETFs within investors' accounts, but it's important to emphasize these are automated investment accounts. There is currently no way to buy individual stocks or ETFs through the platform. And while we're on the subject, Betterment doesn't trade options, mutual funds, bonds, or any other type of investments -- except, as of recently, crypto. Users can invest in diversified crypto portfolios that include Bitcoin and Ethereum; Betterment charges crypto investors a 1% advisory fee.

Robinhood offers far fewer investments than many full-featured brokerage platforms, allowing investors to buy and sell individual stocks, ETFs, cryptocurrencies, and options. It also doesn't offer mutual funds, bonds, or foreign exchange trading.

Robinhood offers three types of brokerage accounts -- individual (taxable) investment accounts, traditional IRAs, and Roth IRAs.

Betterment's investment and bank accounts can be opened with a joint owner, and there are far more brokerage account types offered. One of the biggest reasons people use robo-advisors is to save for retirement, so Betterment offers traditional and Roth IRAs, as well as SEP IRAs for self-employed people. And while Betterment doesn't support UGMA or UTMA custodial accounts, it does allow customers to set up and contribute to trust accounts.

Robinhood offers a spending account with a linked debit card, though it earns no interest on deposits. But users can opt into Robinhood's brokerage cash sweeps program to automatically earn interest on uninvested brokerage cash swept into partner banks. On the other hand, Betterment offers a cash reserve account that earns interest, as well as an actual checking account (Betterment Checking) that not only has no account fees and ATM reimbursem*nt, but has an excellent cash back rewards program.

Betterment and Robinhood are both largely app-centric platforms, although both also have web-based desktop platforms as well.

Both have highly rated apps that are designed to make investing easy, although in very different ways. Betterment's investment app holds ratings of 4.7 out of 5 stars on the iOS App Store and Google Play store, respectively, and Robinhood's ratings are 4.2 and 4.1 (Note: Robinhood's ratings were significantly higher prior to the "meme stock" craze of early 2021, when it was forced to suspend trading in certain volatile stocks to the disappointment of many customers).