Don’t you hate having to deal with spare change? It ends up in the car, in your pockets, on the dryer — anywhere except where it can be useful. Maybe you’ve combated this by designating a jar that collects all your spare change, but it still has to be converted into cash before spending or saving it. Now that debit card usage is more common, many banks offer the equivalent of the change jar for their customers in the form of ‘round up’ checking accounts. Any transactions between $.50 and $1 are rounded up to the next value, and the ‘change’ is automatically transferred to a linked savings account.
At first glance, this electronic version of saving change seems like a wise idea. While it’s better than not saving at all, the notoriously low rate of return on ordinary (as opposed to high yield) savings accounts with your bank means you’re better off investing it. But how can you easily invest such ‘spare change’? What if you’ve never invested and have no idea where to start? Acorns, a start-up investment app, might be your answer.
Since last year, the Acorns app for iPhone and Android has provided a new option for not only saving, but investing your ‘spare change.’
Automated portfolio management means there are no commission fees, and neither does the company charge for individual transactions, or require a minimum balance like many investment companies. For $1 a month (or 0.25% a year for balances over $5,000), Acorns links to your bank account and sets aside any transaction ‘change’. Once that totals $5, the sum will then be transferred into your investment account.
The most notable advantages of using Acorns in comparison to other automatic-transfer investment options (like Betterment’s Smart Deposit) are its beginner-friendly policies and platform. Acorns waves the monthly fee for students and those under the age of 24, making it an affordable investment option for this demographic no matter what amount is invested (Smart Deposit’s fee drops as investment value grows). Of course, the low-cost Exchange Traded Funds (ETFs) Acorns works with each have their own fees that range from 0.05-0.20%, deducted from dividends on holdings.
What’s more, users don’t have to know much about investing to get started. After completing a brief quiz to assess investment needs, users will be matched with one of five diversified portfolios, ranging from conservative to aggressive. Acorns’ system automatically monitors investments to routinely rebalance and maintain the risk level the portfolio is taking.
What About Security?
Acorns assures that no sensitive data is stored on your mobile device, but is maintained on servers protected by bank-level security. Accounts are also insured against losses up to $500,000 by the SIPC.
Overall, for those (especially students and young adults) who are looking for a good way to save money besides a savings account or piggy bank, as well as a low-risk opportunity to get their feet wet in the world of investing, Acorns appears to be a good option.
How do you save your ‘spare change’? Do you use an automatic investment option?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.