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Here at TPG, we often cover the numerous websites and tools that help you book award flights and find the best travel deals, but what about if you’re looking to boost your savings with minimal effort? As TPG Senior Points & Miles Contributor Nick Ewen explains below, the Acorns app offers a unique approach to automatically saving money — providing an easy way to plan for the future and even stash some funds away for an upcoming trip.
For many Americans, saving money for unexpected expenses or for retirement simply doesn’t happen. A recent survey found that more than half of Americans have less than $10,000 saved for retirement, and roughly one-third of those surveyed haven’t saved anything. Fortunately, technology is making the process of saving even easier than it was before, and today I want to go through how you can boost your savings and retirement account balances with a relatively new app called Acorns.
The premise of Acorns is simple and is nicely captured in the app’s tagline: “Automatically invest life’s spare change.” In a nutshell, when you sign up, you can link your checking, savings and credit card accounts to round up every transaction to the nearest dollar and then funnel those “round-ups” into a portfolio of investments with a risk that matches your comfort level. The investments happen automatically, but the brilliance of Acorns is how it straddles the fence between a savings account and a retirement account. You get some of the liquidity of a savings account without fees or penalties for withdrawals, but you also have a range of investment options that can create a nice potential for growth over time.
The theory behind the app is really two-fold. First, because the investment happens automatically, you aren’t having to pull the trigger on a transfer to your savings account. I’m sure everyone can find a better way to spend their hard-earned money, so Acorns makes the decision for you. Second, because you’re only investing a few cents here and there, it’s almost unnoticeable and won’t have the obvious impact on your account balance that a one-time transfer of $250 or $500 will. That being said, these little amounts do add up, and if you’re willing to invest in an aggressive portfolio, your account can quickly grow.
Setting up the App
Now that you have a basic idea of what Acorns does, let’s walk through how to actually set up the app. For starters, let me say that Acorns is designed as an app. Sure there is a website, but I’ve found it to be significantly less reliable and navigable, even through different browsers. As a result, your best bet is to simply download the app (available for both iOS and Android devices).
Once you do, the main landing page will give an overview of the app, and it only takes a few minutes to create an account. To get started, simply click the Sign Up Now icon. You’ll first enter your email address and choose a password and then agree to the program’s terms and conditions. You’ll then be asked to link to the bank where you have your primary checking account. The list includes the major players like Chase, Bank of America and Wells Fargo but also many include local banks — you can use the search bar to find your institution.
It’s important to note that the data you enter is protected with 256-bit encryption and is never stored on a device, so you shouldn’t worry about compromising the integrity of your bank account.
The rest of the sign-up process is relatively straightforward, including a series of questions about your income and investment approach to recommend the best type of portfolio. You’ll also be prompted to make your first investment to get things started.
Once you’re logged in, the dashboard will show you your current account value as well as what you’ve invested over the last 30 days.
If you tap on the three-bar icon at the top left, it’ll open up the app’s menu, and the first section you’ll want to visit is Settings. While you linked your primary checking account during the set-up process, Acorns allows you to add multiple accounts to the app. This will give you more sources of round-ups for the sake of investing. If you tap on Round-Up Accounts from the Settings list, it’ll show you the accounts you’ve added. I first linked my Bank of America account (where I do most of my banking) but then added my Chase details as well:
However, you get to decide which accounts from which banks you want the app to track. For Chase, I have only linked my Ink Plus Business Card and Chase Freedom at this time, though I can easily add the other three at any point by simply clicking the plus sign next to each one. You can also remove the existing accounts by tapping the green checkmark, and at the bottom of this page, you can add another round-up account from a different bank.
If you come back to the Settings list, you’ll also see a link to set up a recurring investment on a daily, weekly or monthly basis.
Simply enter the amount you want, then tap Set Up at the top. This will automatically debit your checking account for the set amount at the desired frequency, and that recurring investment will automatically be invested in your selected portfolio.
Speaking of which, the Settings page also includes the type of investment portfolio you selected during the initial set-up of your Acorns account, though you can switch this at any time. You have five choices:
- Conservative (roughly 60% bonds and 40% stocks)
- Moderately Conservative (roughly 50% bonds and 50% stocks)
- Moderate (roughly 40% bonds and 60% stocks)
- Moderately Aggressive (roughly 25% bonds and 75% stocks)
- Aggressive (roughly 10% bonds and 90% stocks)
Each one of the options actually gives you a two-page summary within the app. The first shows a graph of your projected growth:
You can actually slide the little white dot to the right and left to see your portfolio’s projected value at different ages, but you can also move it up or down to simulate different monthly investment amounts.
Then you can swipe left to get a complete breakdown of how your money is being allocated across the different types of investments.
If you’re unhappy with this mix of investments, simply use the five dots at the top to change to a different type of portfolio, then click Change Portfolio at the bottom.
How does the app work?
Once you have these account and portfolio settings where you want them, it’s time to let the app do its work! When you link a bank account and select specific checking, savings and/or credit card accounts to track for investment, the Acorns app will automatically flag all transactions completed on that account. It will then round each transaction up to the nearest dollar, and when those cumulative round-ups surpass the $5 mark, the app will automatically invest that amount in your portfolio via a withdrawal from your primary checking account.
Here are the last four round-ups that came from my two linked accounts (Chase and Bank of America):
The top item was a recent purchase at one of my favorite local restaurants using my Chase Freedom to take advantage of the current 5% bonus category. The other three were automatic payments from my checking account for three other credit cards: the Chase Sapphire Preferred Card, the Starwood Preferred Guest Business Credit Card from American Express and the Hyatt Credit Card. Once these amounts reach at least $5, Acorns will take that amount out of my checking account and funnel it into my chosen investment portfolio.
There are a few other features of the app to bring to your attention:
- Whole dollar transactions: In the case of transactions that are an exact dollar amount, you can set how much you want the app to invest (if anything). From the homepage, tap the icon with the three bars at the top right, then tap Settings, Round-Up Accounts and then the gear icon at the top right. You can then select an amount anywhere from $0.00 to $1.00.
- Invest/Withdraw: The app makes it incredibly easy to initiate a one-time investment or a one-time withdrawal. Tap on the three-bar icon, then select Invest/Withdraw. You can then choose a specific amount to transfer from your checking account to your Acorns account (invest) or vice versa (withdraw).
- Referrals: Acorns, like many other sites, allows you to earn bonus cash for referrals. Currently, when a friend or family member signs up through your unique referral link and completes account verification, you’ll both get $5 deposited into your Acorns account (capped at $100 bonus cash per calendar year). You can access this promotion from the homepage by tapping the + icon at the bottom right. It can also be found at the bottom of the main menu page.
- Found Money: One of the newest features of the app utilizes new partnerships to boost your Acorns account even faster. If you tap the menu icon (three bars) at the top left, you’ll see the Found Money section. Unfortunately, at the time of writing, you only have four partners, though I am especially intrigued by the one with HotelTonight, as it offers you $10 off each booking of $100 or more through August 16, 2016.
What does this cost me?
Naturally a service like Acorns can’t provide the technology behind the app nor can it offer the investment options it does for free, and there are actually two different fee structures, depending on the amount of money you have in your Acorns account:
- For accounts under $5,000, you’ll pay a $1 fee per month
- For accounts of $5,000 or more, you’ll pay a fee of 0.25% per year (charged monthly and computed daily)
All fees are deducted automatically from your Acorns account balance, and since the fee for smaller accounts is fixed, you’ll actually wind up paying a larger rate when your balance is smaller.
For example, if you invest $10 per month and assume a conservative rate of return of 5%, your account balance would be roughly $123.30 by the end of year one. Since you pay $12 in fees, that’s a relatively high 9.73%. However, if you boost that monthly investment to just $25, your account will be roughly $308.25 by the end of year one, lowering your annual fee to just 3.89%. As your balance gets higher, your effective annual fee drops closer to 0.25%, where it’ll remain for all balances over $5,000.
Note that these fees are in addition to the fees charged by the Exchange-Traded Funds (ETFs) in which Acorns invests your money, which range from 0.05% to 0.20%. While I am not an expert in investment accounts by any stretch, I know that the vast majority of investment options in my Fidelity retirement account carry fees of at least 0.5%, so these are on the low end.
Any points and miles angle?
Unfortunately, I can’t see any way to leverage the Acorns app to boost your account balances in any loyalty programs. The withdrawals from my checking account post as payments rather than purchases, and debit cards that offer rewards are few and far between these days anyways. However, there are a few ways that I (personally) have used Acorns that at least tie into my approach to the hobby:
- Investing cash back: Both my wife and I regularly use cash-back portals like Ebates and Mr. Rebates when we shop online. Whenever I get a check from any of these sites, I initiate a one-time transfer from my checking account to Acorns.
- Selecting specific credit cards: I typically have anywhere from 10-15 travel rewards credit cards open at a time, and I use these in a variety of different ways. Some are just for the sign-up bonus, but others give me lucrative bonus categories that enhance my earning potential. I don’t want to link every credit card I have to Acorns, so instead, I prioritize ones with the types of purchases I want rounded up and invested.
- Saving to cover trip expenses: For many travelers out there, points and miles can only pay for certain aspects of a trip. Even if you can score premium-class award tickets and free nights at luxurious hotels, there are still excursions, dining, spa treatments and other incidentals that can quickly add up. By setting up automatic round-ups and/or recurring investments through Acorns, you can easily set aside money ahead of a trip that can then cover those expenses when you get back.
Technology has truly changed the travel industry, with services like Uber and ExpertFlyer opening up new options and empowering consumers to make the most of each and every trip. Acorns may not be specifically geared toward improving the travel experience, but it’s an interesting way to boost your savings potential. While I’ve only been using the app for a few months, I’m intrigued by how it straddles the fence between a savings account and investment account, and I’m interested to see how it continues to grow in the future!
Do any of you use Acorns?
Chase Sapphire Preferred® Card
|Intro APR||Regular APR||Annual Fee||Foreign Transaction Fee||Credit Rating|
|N/A||16.24%-23.24% Variable||Introductory Annual Fee of $0 the first year, then $95||0%||Excellent Credit|