Acorns review: spare change as investment strategy

Alright, it’s gonna be savings apps review week here so I can stop hinting about the ones I haven’t reviewed yet and just link to these posts, so let’s get started with the first one this week. As I mentioned in my previous post, I use a money app called Acorns that happens to be a good intro for people who want to start investing (or for people who already invest but want to boost their efforts). It’s available as a smartphone app, but you can also view and manage your account online.

Disclaimer that I’m using my referral code when I link to Acorns in this post. If you sign up through that referral, we both get $5.

How it works

When you set up your account, you connect a checking account from which Acorns withdraws the money, and any other accounts (savings, credit cards) you want it to use for tracking transactions and purchases. When you make a purchase, Acorns rounds it up to the nearest dollar and puts the spare change from the round up into your account (for my $104.69 barre membership fee, it rounds it up to $105 and deposits the extra $0.31 into my account). The default is to round up to the nearest dollar (including $1 for any transactions that are $X.00), but you can choose to use a round-up multiplier to save even more money (that $0.31 for my barre membership would be $3.10 if I had the 10x multiplier option turned on).

Since the round-up amounts are so small, Acorns waits until you’ve accumulated at least $5 to withdraw from your checking account and invest that money. Because of this strategy, I don’t actually notice Acorns withdrawing from my checking account. Unlike Digit, which occasionally takes a large amount out at random after not saving anything for sometimes two weeks, my Acorns withdrawals are typically between $5-9 and occur on a fairly regular basis. With my normal spending, I seem to accumulate around $75 a month in round-ups, not including the recurring once a month $5 transfer I also have set up.

It’s also funny to see Acorns round up on withdrawals from my other savings apps (or on money I transfer over to Vanguard)—Digit, Tip Yourself, and Qapital are all indirectly sending money to my Acorns account!

Investments

You can’t set up a retirement account with Acorns—it’s only for individual accounts, so all money deposited is after-tax and all gains are taxable. Spare change investing is not actually a good strategy for saving for retirement anyway, so it works that this means Acorns is best for fairly short-term savings goals.

However, Acorns is good for people who want to start investing because it doesn’t require a minimum amount to get started. If you don’t have the $3,000 necessary to open an account at Vanguard and start investing in their total stock market index fund, Acorns is a good way to get your feet under you, and perhaps to fund that $3,000 minimum. Acorns would also appeal to anyone who has no idea how to pick something to start investing in, because the app makes that decision for you.

When you set up your account, you can choose one of five portfolios based on your preference for risk and what your savings goals are. The choices are conservative (55% bonds, 45% stocks), moderately conservative (45% bonds, 55% stocks), moderate (30% bonds, 70% stocks), moderately aggressive (15% bonds, 85% stocks), and aggressive (100% stocks). Once you choose your portfolio profile (mine is set to aggressive), Acorns makes all the decisions about how your money is invested and rebalances for you—you just put the money in.

Fees

For most accounts, Acorns charges a fee of $1/month, deducted from your balance. This is pretty steep, especially for people with lower balances. If your account has more than $5,000, you get charged 0.25% instead of $12 annually (which, if you do the math, means you pay $12.5 on $5,000. So fee-wise you’re better off with a balance under $5k).

For students (and also, ahem, anyone else who might happen to have a .edu email address…), you get up to four years free. ETA: you have to have “student” as your occupation in order for this to work!

Found Money

Acorns has partnered with a few companies to boost your savings through a program called Found Money. Depending on which company you buy from, you might get either a small percentage of your purchase deposited in your Acorns account or a lump sum like $10. I personally haven’t used this feature, mostly because when I first made my account, none of the companies were ones I used. I know they’ve added more in the meantime, but I keep forgetting to check to see if there are now any places I ever spend money at, oops.

Bottom line

Acorns is a good place to get started, and I like that it’s more unobtrusive than other apps I use. I opened my account in June 2016 with $20 and 14 months later my balance is now about $1,200 because I don’t have the multiplier turned on so this is just the spare change and the returns/dividends. It’s certainly not going to replace my taxable account and I will likely close my Acorns account at some point in the future and move it all over there. The fees are steep and I personally like having more control over my money, but someone else may prefer the more hands-off approach here. But considering the money in my account is literally spare change and much of that $1,200 likely wouldn’t be invested otherwise, this is a nice addition to my savings strategy.

If you’re interested, you can sign up for an account here.