By Anna Irrera
NEW YORK (Reuters) - Wealthfront, one of the largest digital wealth management firms known as "robo-advisers", said on Thursday it is expanding its suite of financial products by introducing a cash account with a rate on deposits of 2.24 percent, significantly higher than the average U.S. rate.
The accounts will be launched through partnerships with several banks, including East West Bank and New York Community Bank, and will be protected by the Federal Deposit Insurance Corporation (FDIC) for up to $1 million, the company said.
Average rates at insured U.S. depository institutions, including mainstream banks, are 0.06 percent for checking and 0.09 percent for savings, according to the FDIC.
"Our clients hold almost $12 billion in cash and a lot of it is earning next to nothing," Dan Carroll, Wealthfront's founder and chief strategy officer, said in an interview. "We think they have an opportunity to get more out of it."
Wealthfront clients will be able to open the account by depositing as little as $1, the company said.
Financial technology companies have started to move beyond their initial area of focus, and several are seeking to lure deposits through higher interest rates than those offered by banks.
Student lender Social Finance last year launched a checking account with a 2 percent interest rate, and British money transfer company TransferWise introduced a low-cost multi-currency account.
Not all launches have gone smoothly, however. In December, trading startup Robinhood suspended the launch of what it called a "checking and savings" service offering 3 percent interest after reports that the deposits might not be insured by the Securities Investor Protection Corp, which covers cash accounts at brokerages, as originally marketed by the company.
Wealthfront, which has more than $11 billion in assets under management, is best known for its robo-adviser function of automating the creation and management of portfolios made up of low cost exchange-traded funds (ETFs).
The Silicon Valley start-up hopes to be able to automate the management of all of its customers' finances and said that the launch of the cash account was a step towards that goal.