Everyone's Using Spare Change Apps — Are They Really Worth It?


Dad had one. His grandfather had one, too. And today, despite using credit cards for most transactions, I, too, have a change jar sitting on my dresser.

As people shift from cash transactions to paying for everything with credit cards, debit cards, and even their phones, is the opportunity to invest “spare change” lost? Not if you try one of these micro-investing apps that purport to effortlessly grow your savings. Let's review some of the most popular apps, including their pros and cons.

1. Acorns

What it does: After you link one or all of your credit cards to your account, Acorns rounds up each purchase to the nearest dollar and takes the difference from your checking account. (See also: Here's What I Learned About Money After Using Acorns)

Cost: Free for college students for four years, $1 per month for others; 0.25 percent for accounts of $5,000 or more.

The good: Automatic saving is great because you don’t have to remember to do it. Your investment account is auto-managed in ETFs (exchange-traded funds), so the money that grows there will feel like pennies from heaven.

Partners including Jet, Airbnb, and Hulu have agreed to give Acorns users cash back, which they deposit straight into your account. Free money, people!

The bad: If you are only investing a few dollars a month, that $1 management fee could turn out to be an outrageously high percentage of your investment. Also, if your bank account tends to run low, the money this app withdraws could cause an overdraft and cost you a nasty fee.

2. Stash

What it does: Stash is simply an ETF investing app, but unlike stockbrokers who require a $1,000 or larger initial investment, Stash keeps the initial investment threshold at just $5. Pre-arranged portfolios have cute names like “The Activist,” to help people with no interest in financial jargon figure out what funds to buy. The Auto Stash feature will periodically transfer a predetermined amount of money from a linked bank account.

Cost: $1 per month for balances under $5,000; 0.25 percent per year after that (which starts at $12.50 per year for $5,000).

The good: If not knowing what to invest in or not having enough money to buy into a mutual fund was keeping you from investing, user-friendly Stash could be a good jump start. It could be a good way for kids or young adults to experiment with investing on a small scale.

The bad: As with Acorns, the $1 a month fee is actually quite expensive for small account balances. Then there’s the question of whether you’re getting good advice on what to invest in. The funds currently offered on Stash have a relatively high expense ratio, meaning that, market performance being equal, other funds might yield more money to the investor after fees. And Stash doesn’t auto-balance your investments over time like other robo-advisers.

Special offer: Want $5 to get started? Use our referral link: Sign up for Stash and get $5 to start investing today!

3. Qoins

What it does: Qoins skims the “change” from transactions, and then uses that change to pay off debt. The company estimates that most people end up paying down an extra $40 in debt each month they use Qoins.

Cost: Qoins deducts $1.99 from each monthly payment sent out on your behalf. If your monthly total is less than $20, Qoins won’t send out a debt payment and won’t charge you; instead it will roll over your accumulated spare change into the next month’s payment.

The good: If you’ve got high-interest loans, you can probably save more in interest by chipping away at debt than you could earn from saving at today’s low interest rates. And unlike investing, paying off debt is risk free.

The bad: Again, that fee is going to erode gains. Paying $500 extra each year on a student loan might save you $25 in interest, but the app costs nearly $24 a year to use. You could achieve the same benefit for free by setting your monthly automatic loan payment $40 higher.

4. Debitize

What it does: Aiming to help people avoid credit card debt, Debitize links your checking account to your credit card and makes a checking withdrawal every time you make a credit card charge. Then it pays your monthly credit card bill with the money it withdrew. The end result is the ability to use a credit card like a debit card.

Cost: Free.

The good: At first it’s hard to grasp the point of Debitize. I mean, if you want to pay for all your purchases at the time you make them, you could simply stick to a debit card, a choice millions of conservative spenders make.

However, Debitize positions itself as a way for previous debit users to take advantage of all those rich credit card rewards out there, and build their credit score, while avoiding the risk of getting into credit card debt. I can imagine this as a training wheels program for people who have had trouble with credit card debt before. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

The bad: To me, this service would add an unnecessary layer of complexity to life. It doesn’t offer to increase my savings or cut my expenses, just to save me from myself by putting aside money to pay my bills.

5. Digit

What it does: Instead of focusing on transactions, Digit analyzes your checking account inflow and outflow. Every day that it judges you can afford to, it moves a little money from your checking to an FDIC-insured savings account.

Cost: $2.99 per month.

The good: Digit's “no overdraft” promise means that if a transfer causes your account to go negative, it’ll cover the fee. It’s also nice that Digit will allocate your savings toward goals of your choice, such as a rainy day fund or a new TV.

The bad: When you save and invest, your money is supposed to grow. But unless you’re saving large amounts each month, your savings may shrink a bit with Digit. Digit is putting your money in a savings account on your behalf, and paying you a 1 percent annual “savings bonus,” broken into four quarterly payments — which is not a bad rate. But it also charges $2.99 per month. So if you invest $1,000 over the course of the year through Digit, you’d earn $10 in interest, but pay $35.88 in fees.

6. Change

What it does: Change monitors all your transactions and texts you with reminders and suggestions for wiser money management. For example, the app might point out how much you’ve paid over the course of a year for a service you forgot you were signed up for.

Change also offers “auto saving” which, like Digit, analyzes your account and transfers money it thinks you don’t need to a separate account that pays you “savings bonuses” instead of interest. The standard bonus rate (like today’s interest rates) is low at 3 percent, but you can increase your rate by referring friends to sign up for the auto-save service.

Cost: Free.

The good: Fans of the app appreciate getting insight that they would not have gleaned on their own. Unlike the other apps in this post, which focus on saving in small increments, Change is looking to change big picture and long-term behavior. Its impact on your savings efforts could be huge.

The bad: If you already get a lot of texts, having your phone start notifying you when you've spent too much money could be annoying.

The takeaway

One drawback to all of these accounts is that they focus on adding money to after-tax accounts. If you are earning income, you should really focus on contributing to your tax-advantaged retirement account. That said, if you’re already paying into your retirement fund, one of these apps could be a way to contribute to a rainy day fund, or to chip away at debt.

Another concern that applies to all of these apps is that you're inviting a second or third company to peruse and make use of your financial data, meaning that your privacy and the security of your accounts could be diminished. Of course, each app has reassurances on its website about how great its data security is, but hacks happen. Before handing over your account information to any service provider, make sure you understand how it plans to handle your data.

Personally, I don’t like paying fees. I don’t dump my real change jar into one of those machines that charges a fee to turn it into folding money, and I wouldn’t pay a monthly fee for a company to make micro-withdrawals from my checking account for me. Instead, I’d be inclined to emulate their effect for free by setting my checking account to autodeposit a set amount of money into savings or an investment account.

If you value novelty and convenience over a buck or three a month, and you have never invested before, any of these apps might help jump start your savings and investment career. If that’s you, take one of them for a spin. But be sure to re-evaluate after six months or so to see if you’re getting enough value from your monthly fee, or if you’re ready to graduate to another form of saving and investing.

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