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Automated Bond Ladders

*Note that the Automated Bond Ladder is currently in a limited beta. We expect to roll this out to everyone in the near future. If you’d like to be added to our waitlist for early access, you can reach out to our team at support@wealthfront.com

What is a bond ladder?

A bond ladder is a portfolio of bonds with varying maturities, designed for capital preservation and reduced interest rate risk compared to buying one individual bond. It offers predictable cash flow through interest payments and maturing principal.

How does Wealthfront’s Automated Bond Ladder work?

Wealthfront’s Automated Bond Ladder is an automatically managed bond investing account that offers an opportunity to earn a higher yield than someone would holding funds in cash, while preserving the value of their principal. Our bond ladders include monthly 'rungs,' which are like steps in the ladder. Each rung represents one or more bonds that have a maturity in the same month. 

Our bond ladders are composed entirely of US Treasuries (including a mix of Treasury Bills, Treasury Notes, and Treasury Bonds), which offers principal protection as long as the bonds are held to maturity. You can personalize your ladder by indicating the longest rung you want. We’ll handle all the buying and reinvesting according to your preferences. 

How are treasuries treated from a tax perspective?

Interest income from Treasury securities is subject to federal income tax but exempt from state and local taxes. This is especially advantageous for clients with high state tax rates. 

What customization options are available?

When setting up a bond ladder, you can customize the longest maturity period in your ladder by choosing the “longest rung”. This determines the number of rungs it contains since your ladder is designed to have one rung mature per month. The “longest rung” options range from 6 months to 6 years, and we plan to offer even longer durations in the near future. 

How does reinvesting work? Can I turn it off?

When reinvesting is on, we’ll automatically buy new bonds with the interest payments and principal from matured bonds. As this cycle continues, you’ll benefit from compounding interest. 

It is currently not possible to turn reinvesting off, but we will offer this option in the near future. This will allow clients to use the account to produce income by having their interest and bond proceeds automatically swept to a different account.

Is there a fee?

Yes, we charge our standard 0.25% annual advisory fee. For Early Access participants, this fee is waived for your first 6 months. Note that the average yield that we quote within the product is net of this fee. 

Is there a minimum deposit requirement?

The minimum is $500 for the initial deposit and $100 for additional deposits. 

Can I withdraw money at any time?

Yes, you can easily request a withdrawal on our app or website. Withdrawals typically take 2-3 business days to complete. Please note that selling a bond before it reaches maturity could result in a loss to principal. 

How does this compare to Wealthfront’s Automated Bond Portfolio of ETFs?

The Automated Bond Ladder and Automated Bond Portfolio are different in how they work and the risks involved.

  • Automated Bond Ladder: This product focuses on preserving your money while earning some interest by directly owning bonds. It’s a ladder made of U.S. Treasuries that mature at different times, giving you predictable earnings over the length of your ladder. Unlike our Automated Bond Portfolio, it’s designed to protect your principal as long as you’re able to hold the bonds until maturity, however you may have lower returns than the Automated Bond Portfolio. 
  • Automated Bond Portfolio: This product aims for higher returns but comes with more risk since it solely uses bond ETFs that include corporate bonds. Unlike our Automated Bond Ladder, your principal isn’t protected because you don’t own individual bonds or hold them to maturity. However, if you’re okay with slightly more risk, there is the potential to earn more.  

If you place a very high priority on safety and predictability, we’d recommend our Automated Bond Ladder. If you're willing to take more risk for potentially higher returns, the Automated Bond Portfolio might be better.

How does this compare to a CD ladder?

While there are some similarities to CD ladders, here are a few key differences:

  • Tax treatment: Interest earned from Treasury bonds are exempt from state and local taxes, whereas interest earned from CDs are taxed at the ordinary rate without any tax exemptions.
  • Flexibility to withdraw funds: With our Automated Bond Ladder, you can withdraw funds at any time. It’s possible you may lose some principal if you withdraw early and the price of the bonds has decreased, but it’s also possible you won’t lose principal. On the contrary, with CDs, many of them have penalties where you are guaranteed to lose money if you withdraw funds early.
  • Insurance: US Treasuries offer very little risk when held to maturity and are backed by the full faith and credit of the US government. CDs, however, come with FDIC insurance.

Can I have multiple bond ladder accounts?

Yes, you can open multiple bond ladder accounts. 

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