OK. You know you need to save. But it’s just so hard to actually transfer big amounts of money into savings when you want to pay bills or travel or buy new shoes or whatever.
Stop beating yourself up about this. It’s a real psychological problem: humans have a hard time setting aside for the future what could be used right now.
But in our society, we don’t have much of a choice. Whether it’s for retirement, for emergencies like job loss or car repairs, for travel, for some other big goal like education or a down payment, we need to save.
Enter a new set of apps that tries to make saving almost literally friction-free by setting up small automatic transactions, so that you end up saving without ever thinking about it.
Digit
One of the best-known of these apps is Digit. Digit is a “smart” app — you link your checking account to it, and it analyzes your spending patterns and withdraws a few dollars every now and then that it thinks you won’t “need” to use. The money then goes to a savings account.
Digit guarantees that you won’t overdraft, and your money will be FDIC-insured up to $250,000. You can withdraw your deposits at any time. The catch? You won’t get interest on your savings, since Digit covers its own expenses by using the interest on deposits. But if you have trouble saving, it might be worth it.
Qapital
Like Digit, Qapital automatically withdraws small amounts of money from your checking account and puts them in an FDIC-insured savings account. But if you find Digit’s random amounts more maddening than charming, Qapital offers you a higher level of control.
When you set up an account, the app asks you to also set up “rules.” For example, the “round-up” rule lets you round up any credit card purchases or other transactions to the nearest $1 or $2. The app keeps track of your purchases, and twice a week withdraws the rounded-up money (this is so you don’t have 20 withdrawals of $.15 or so every week — instead you get two withdrawals of $3.53 or whatever amount it is.)
Qapital offers a variety of other rules that you can tweak for various levels of automatic savings. The app requires more up-front thought than Digit does, but if you’re a control freak you might like it better.
Acorns
Unlike the previous two, Acorns is a “micro-investing” app, not a “micro-savings” app. Like Digit, it’s a zero-thought setup; like Qapital, it focuses on rounding up your purchases. For a $1/month fee, it simply withdraws the “spare change” from your checking account and invests it in an automatic, diversified portfolio.
Using Acorns instead of one of the savings apps comes with the usual tradeoff: more risk in the market, but also more potential for reward. If you’re curious about investing, though, it could be a fun way to get your feet wet.
Your Bank’s App
If you have a conventional checking/savings account, you can almost certainly set up a monthly automatic withdrawal for any amount from $1 on up.
The upsides: you get to keep any interest you earn, and there are no risks.
The downsides: it’s not as much fun as the “round-up” rules and randomness of the other apps; your money is even easier to access, so you might be more tempted to spend it.
Watch for Newcomers…but Be Careful!
Automatic savings apps are a powerful idea and I expect there will be many variations in the future that will be attractive, so keep an eye out…but like always, be cautious.
When I was researching this post, I ran across VaPay, which apparently grew out of an idea to help people save for vacations with small amounts (hence “Va.”) Like Qapital, it claims to round up transactions and move the “spare change” automatically to a savings account, only it works by rounding up debit, not credit, transactions.
I thought it might be an interesting option for those who use debit cards. However, there were three red flags:
- I couldn’t find information on their site on whether or not the accounts were FDIC-insured.
- Their fee schedule seems high to me compared to the others.
- When I searched the company, I didn’t find reviews by bloggers or others who’d used the app.
I wrote the company about the FDIC insurance and never heard back. So my conclusion was that they are not a safe company to deal with. Be sure to do your research before trusting your login information and cash to an app!
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I’ve used Qapital, Acorns and automation through my bank account. I like the fact that with Qapital you can save toward a common goal with friends or family. For example, my boyfriend and I are saving for a trip by depositing $20 each every week in to a Qapital account that we’ve deemed for vacation.
Some apps are very helpful…
I keep wanting to try Digit but I’m afraid it will take some of the money away that I need since I tend to budget very strictly, haha. I like how you can transfer money back to yourself and put savings on autopilot though.
Acorns is a personal favorite of mine. It has been performing well, pays dividends and I get no fees as I am a student. I think of it more as a savings account than investing though, just higher interest :). Heard a lot about digit but don’t want to download it until I start working.
Although my upcoming suggestion isn’t for everybody (it’s not an app) but you can also automatically have money saved with a Charles Schwab Investor credit card.
Instead of paying a 1% cash reward on all purchases, they automatically put the 1% in you Schwab investment brokerage account.
Obviously you need to be a Schwab customer & a responsible credit card user, but I thought it’s a unique reward option to help save money similar to Acorns without any fees.
Are these apps just for the US? I’ve not heard of them before. They sound really helpful though! :-)
I’ve heard of a couple of these; thanks for sharing. Sadly as an Australian I don’t think we can get any of them (yet). Hopefully soon :)
Tristan
I’ve been hearing about Acorns for a couple of years. I will probably sign up for it in a couple of months. I have to do a little more research on it first,