Acorns: Use a Savings App to Build Savings
If you compare yourself, your parents, and your grandparents, who was better at putting money aside in savings accounts? Part of that answer depends on when you were born and how each generation in your family was doing economically. One thing that is certain is that your grandparents' generation didn’t grow up with savings apps, so how were they able to set aside more in savings than we do today.
Here are three facts about savings:
- Americans are not saving as much as in years past. In fact, personal savings rates in the USA are near historic lows.
- 40% of Americans don’t have enough savings to cover a surprise $400 expense.
- Over 100 million working age individuals (59.3%) have no retirement account assets, according to the National Institute for Retirement Savings. Zip. Zero. Zilch.
Clearly, there is a savings problem going around. If you have trouble building savings, that is not good for your overall financial health. Fortunately, there are some easy ways to build savings and make saving money a habit.
FinTech Savings Apps
On a brighter note, several FinTech companies are addressing this problem, bringing innovation and new ways to encourage saving to consumers. Savings apps are one example.
Micro-investing savings apps help you build savings. The Acorns app takes your savings and grows it through investments. As the “micro” indicates, it is an incremental approach, where the individual deposits are small, even minimal. Micro-investing helps people who want to invest but haven’t so far, and who may feel intimidated or overwhelmed by putting money into an investment account and selecting how to invest it.
Acorns is a very popular micro-investing savings app. It has over 4 million users, as of April 2019. Acorns is easy to use, providing you with an automatic way to build savings to use for investments, without ongoing effort. As Ron Popeil said, “Set it and forget it.”
How Acorns Works
It only takes a few minutes to set up Acorns Core, Acorn’s basic savings and investment account. Download the app, link a bank account, and make some basic investment choices. Acorns rounds up purchases you make to the nearest dollar and sends the difference to your Acorns account. For example, if you fill your gas tank and the cost is $28.31, Acorns could round your purchase to $29.00 and send 69 cents to your investment account. You can also choose to have a specified amount go into your account on a one-time or a recurring basis. Acorn requires a $5 minimum to get your account established. Such a low dollar amount eliminates barriers to entry.
You can also contribute “found money” into your Acorns account, money that goes into your account when you shop with one of the 200+ Acorn merchant partner, including many major retailers, such as Apple, WalMart, Amazon, Macy’s, and Nike. As part of continued improvements Acorns rolls out, they now offer a Chrome extension which makes it easy to connect with the merchant partners. The Acorns website cleverly states that the merchants are "investing" in your account when you shop with them.
Like the person who says, "Look at how much I saved today, by buying this on sale!," don't overestimate the benefit of "found money" that comes from purchases you make. If you are spending money for something you don't need, how big a sale it is or the fact a fractional portion goes into savings doesn't offest the wasted expense. Forego purchases you don't need and you will have some real 'found money" to save and invest.
Acorns Helps You Invest
The money you build up in your Acorns account is invested in a diversified portfolio. Acorns algorithm, developed by a Nobel Prize winner, selects the type of investment mix for you by asking a series of simple questions about your income, age, employment status, and accumulated assets.
Based on the information you provide, Acorns will suggest one of their five portfolio investment options: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive. When the market fluctuates, Acorns automatically rebalances your portfolio.
Acorns Target Audience
Acorn is aimed at the novice investor, making it simple to dive in without a lot of study or preparation. They wave their fees for college students, as a way to build a relationship with people who don’t have a lot of money to invest. Acorn wants to provide value to college students and continue to work with them after they graduate and have much more money to invest.
Acorn's Fee Structure
An Acorns Core account costs $1 per month. That is not a lot of money, obviously, but whether it is worth the costs depends on how much you deposit, what your costs would be for other options, and how important it is to have the features and simplicity of Acorns advancing your savings. It can be worth paying a fee if you end up with more invested than if you were going about things on your own.
Acorns added new products, with more still to come. For $2 month, you can add a retirement account, an IRA, to your Acorn Core account. They call your retirement account Acorns Later. Your IRA has tax benefits, and it is wise to make a habit of contributing to your retirement account as early as possible. If you have no other retirement savings account through work, this could be a good option, to get you in the game.
Contribute to an employer 401(k) account, before you contribute to an Acorn Later account, if your employer matchtes your contribution. Don’t forfeit free money your employer gives you for the ease of using the Acorn app.
The newest product is an Acorns Debit Card, what they call Acorns Spend. Acorns Spend costs $3 per month and includes Acorns Core and Acorns Later, so you will have an investment, retirement, and bank account with Acorns. The debit card has no overdraft or minimum balance fees, a large network of ATMs you can use nationwide that are free or for which you can receive reimbursement.
The Acorn debit card quickly had 100,000 sign-ups when initially offered. Adding this product demonstrates that Acorn wants to establish a larger footprint with its customers and keep them for the long run.
Is the Acorns App a Good Deal?
If you invest a small amount of money, you won’t grow them into a large amount, even over time. Paying a fee if you can only budget a small amount isn’t going to grow enough to be financially beneficial. Where Acorn can benefit you is helping you establish a habit of putting money into savings and investments.
Bills.com recommends that your first savings goal should be to build an emergency fund. Acorns can support that, as the ease of moving money out of your Acorn Core account gives you the liquidity you want in an emergency fund. However, it may make more sense to establish a high-interest savings account. It depends on your individual circumstances and preferences. The most important thing is to make a plan, measure your progress, reassess, and then modify your plan if necessary.
The fact that Acorns has established such a large number of users tells you they are doing something right. The different products they bring to the market is impressive. All their products are easy to use. These are smart people. They know they need to keep adding value to their service for it to be something that not only gets some good habits in place but measurably raises the financial health of their customers.