Note: This Acorns review article has been updated with the latest information as published on the acorns.com website.
No sooner than I finished my Digit review, than I saw an ad for another automated savings app on Facebook that takes a different tack for building up your savings automatically with the help of an app and online financial service.
This one is called Acorns. Whereas Digit monitors your bank balance and transfers money its algorithm determines is “extra” into a savings account for you, Acorns rounds up the change on every purchase you make to the next whole dollar amount and automatically saves that money for you. Another difference is where Digit sends your money off to a savings account somewhere, the Acorn app, invests your money in a “personalized investment portfolio.”
Acorns Reviews – Is Acorns Legit and Safe?
First up, we’ll want to make sure that Acorns is not a scam. The company is backed by some big name investors, so if it is a scam, some other people got scammed for a lot more money than you ever will.
According to the website, your money is transferred to an SIPC insured account. (SIPC is the investing and brokerage world’s equivalent of FDIC insured.)
How Acorns App Works
Acorns doesn’t work exactly the way you might think it does based upon the headlines and bold print at Acorns.com. It’s not that Acorns is a scam, it’s that the actual mechanism it uses to operate doesn’t match up with the concept that is boldly advertised by the company.
This online money service actually has no way to “round up” your purchases. That kind of transaction adjustment can really only be done by the merchant (like when Safeway asks if you want to round up for cancer research), or by the payment processor themselves. Instead, the actual mechanism of Acorns is that you link whatever accounts you want to use for your rounding up and investing, and then the Acorns software keeps track of what you would have rounded up if they could actually round up your transactions. Then, by linking your checking account, Acorns will then make a transfer of that amount at a later time, once all of your round ups totals at least $5.00.
So Acorns really works like this:
- You link your Capital One Rewards credit card to Acorns
- You buy lunch for $6.37
- Acorns calculates the amount to round up as $0.63 (it does not transfer any money at this time)
- You keep buying stuff, and Acorns keeps adding the amounts up
- When you have at least $5.00 of round up, THEN, Acorns transfers $5 from your linked checking account, no matter where you made the charges originally.
So, if you expect to see each one of your purchases, on several accounts, rounded up to the nearest dollar, that won’t happen. All the money invested comes from one single checking account, no matter how many accounts you link for spending and rounding up purposes.
If you expect to see a few cents transferred out of your checking account every time you make a purchase, that won’t happen either. Mathematically speaking, the greatest possible round up is 99 cents. So, it would take a minimum of six purchases to have any money transferred and invested. Statistically speaking, the average number of transactions before a transfer occurs would probably be around 10.
What you will see is the occasional transfer of $5 from your checking account, a few times every month. The company’s transfers will be listed as ‘Acorns Investment WEB PMTS’ on your statements. There is nothing wrong with this, it just isn’t exactly what you might expect to see based on the Acorn.com marketing copy.
Currently, Acorns only works as a smartphone app. This makes me nervous security-wise, but with services like Apple Pay, this kind of thing is clearly the future, at least until the first major rip off of people occurs and then the security gets better. The company also says that nothing is stored on your phone, so theoretically, if you lose your phone, there isn’t anything to find.
Here is where you want to pay attention with Acorns. The company has done something really great by not having minimum account balances or minimum investments. However, investing your money isn’t free, and Acorn does charge some fees, which they are refreshingly up front about.
A new feature allows students to invest for free, and by students, they mean people with an email account at an .edu address, or those under age 24. If you are under 24, then you automatically get the free fees setup. Resist the urge to lie about your birthday which can run you into trouble with banking rules and money laundering laws down the line. If you are a student, and over 24, then you need to sign up with your .edu address AND list student as your employment status to get the free fees.
Otherwise, if your account balance is less than $5,000, you will pay a $1 per month fee. On the one hand, this doesn’t sound like much, but as a percentage, this is can be pretty steep, especially when you first start using the product. For example, if your round ups for the first month total $25, then a $1 fee is 4 percent. But, don’t forget that’s for one month. Annualized, that same fee is something like 48 percent. (That’s not entirely accurate, especially if your account balance is growing, but the point is the same.) Accounts with over $5,000 in them are charged a much more reasonable (actually pretty darn good) fee of 0.25% per year.
The good news is that you can also invest a lump sum, or recurring amount, outside of your usual round-up investments. The maximum single deposit is $10,000. Ideally, you want to make a lump sum investment of $5,000 to get the minimum fees for your account, and then start using the rounding up savings and investing feature of the acorn app.
Where Does Acorns Put My Money?
The most interesting thing about Acorns is where it transfers your money to when it scoops out that $5 at a time from your checking account.
Instead of putting your money in a savings account, Acorns invests your money in a stock-based investment portfolio. We cover what Acorns investment portfolios look like in the next article, but it is important to understand what this means from a personal finance standpoint.
A service like Digit puts your money in a savings account with no fees. They also pay no interest. That is how they make money. On small amounts that you plan to spend anytime in the next three to five years, this is much better than investing your funds in an account like Acorns does where the balance will fluctuate and you will need some time for your earnings to out pace your fees, and the market’s volatility.
However, if you consider Acorns to be money you are setting aside for the long-term, like a kid’s college fund, or even for your retirement, then this is a very intriguing idea. Just don’t forget, your balance will fluctuate with the markets. The stock market is NOT where you put your short-term savings.
Withdrawing Money from Acorns Investment Accounts
Once you have money invested, you may want to withdraw some of your Acorn money. Withdrawing money happens as an electronic deposit into the same checking account your deposits come from. This can take 5-7 business days for the money to be fully available in your account. This is a function of the banking system, and not Acorns’ delay.
The company says that there are no fees or penalties for any withdrawals at any time. There is no limit to the amount you can withdraw at any one time.