The pros and cons of apps for saving and investing
In personal finance, tech can be a double-edged sword. The ability to automate savings and bank online were game changers when they came along. Same with the various budgeting apps like Mint. But sometimes tech can give us a false sense of control, perhaps increasingly so—and, if we don’t read the fine (digital) print, tech can cost us money when it’s supposed to be helping us save it.
That brings me to the ever-widening range of saving and investing apps out there.
This financial technology, or fintech, can do everything from automatically funnel money you’d never miss to a savings account, to trade stocks and funds for free, to sell you affordable fractions of shares of a company. Sounds great, right? Unfortunately, some fintech has a deadly combination of high fees and low guardrails for responsible money management. For example, the ability to make trades for free could encourage you to trade more than you should. (Research shows that frequent traders tend to earn less than infrequent ones.) Many of these apps are detailed below. For each one, I’ve included a “Con” section that amounts to the most critical “fine print” you need to know.
My advice: Use them only if you’re sure that fees or a lack of guidance won’t trip you up.
Digit
Focus: saving, investing
What it does: Analyzes your cashflow—including your checking account balance, recent spending, and upcoming income and bills—to create customized, recurring, automatic transfers to a savings account. Digit’s algorithm identifies money you won’t need and funnels it—typically $10 to $30, two or three times a week—from your checking account to a savings account provided by the app. Digit also offers a Bills account (it collects money for what’s coming due this month) and retirement investing via IRAs.
Where your money goes: a savings account (that pays no interest) or a retirement account
Fees: $5/month (not including any fees charged by ETFs in its investing accounts)
Pro: Because its unique algorithm tries to maximize saving, Digit may bank even more of your money than the usual (and very sound) personal finance practice of simply funneling a predetermined portion of each paycheck to savings. You can also set personal savings goals (e.g., a down payment, vacation, or emergency fund). You can also invest for retirement with Digit.
Con: Digit’s savings account pays no interest. (Although it does offer a 1% “annualized savings bonus.”) Digit’s algorithm can also make mistakes, leaving you with an overdrawn checking account. (If this happens, Digit will reimburse charges that are its fault.) Finally, some banks offer similar adaptive savings options at no cost. (Ally, for example, call its feature “Surprise Savings.”)
Qapital
Focus: saving and investing
What it does: Makes automatic saving and investing into a kind of game. You select from a set of savings rules (or create your own), such as: Round up to the nearest dollar every time you use your credit card and transfer the change to your savings; “penalize” yourself by transferring $5 to savings each time you get your Starbucks fix, order an Uber, or post on Facebook; or send a set amount toward your savings target every time you achieve some personal goal, like going to the gym. For a monthly fee, Qapital also offers premium services including a Qapital Visa debit card with a checking account and Qapital invest, which offers portfolios of ETFs (exchange-traded funds).
Where your money goes: a savings account (0.10% interest), a checking account (0.10% interest), or a taxable investment account
Fees: $3/month (saving only), $6/month (saving plus checking/investing), $12/month (saving/checking/investing, plus share finances with a partner). Qapital’s fees are in addition to any fees charged by its ETFs for taxable investing accounts.
ETF expense ratios: ~0.04% to ~0.15%
Pro: You can customize your goals or rules. Behavioral scientist Dan Ariely, a Duke psychology professor, helped design the product, so it’s smart. You can save for both the short term (in a savings account) and the long term (in a taxable investing account).
Con: The monthly fees ($6 or $12) are inordinately high for the checking/investing services, given that Qapital offers investors no tax planning or access to a certified financial planner (CFP). The linked savings account pays almost no interest. The service doesn’t support tax-favored retirement accounts like 401(k)s and IRAs. Plus, Qapital’s website is not especially user-friendly.
SoFi
Focus: saving and investing
What it does: Acts as a money management hub. There’s an interest-bearing spending account called SoFi Money; there are ETF and stock trading and both taxable and retirement investing accounts with SoFi Invest; and there’s a Mint-like budgeting tool called SoFi Relay. SoFi is a many-tentacled company: It also offers personal loans, student loans, student loan refinancing, insurance, crypto investing, and home loans.
Where your money goes: a savings account (1.60% interest) or an investment account
Fees: none for saving and investing accounts, though non-SoFi ETFs may carry expenses, and SoFi sells many kinds of loans that charge interest
ETF expense ratios: 0.00% to 1% or more
Pro: No fees or commissions. SoFi offers a handful of proprietary ETFs that have no expenses. You can make free appointments to speak with a CFP. SoFi offers fractional investing—buying small pieces of a single share of an individual stock.
Con: Expense ratios for non-SoFi ETFs are not listed, leaving uninformed investors vulnerable to choosing expensive funds. Meanwhile, not everything is free at SoFi; it makes money on interest from its loans, particularly personal loans that are potential trouble—and are often brought to your attention. As budgeting apps go, you can do much better than SoFi Relay’s barebones tools. SoFi is not a bank, so while SoFi Money acts largely like a checking account, it’s an investment product that’s not FDIC-insured.
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Acorns
Focus: investing
What it does: Automates small contributions to investment accounts, based on your spending habits. Whenever you use a debit or credit card you’ve allowed the app to track, Acorns rounds the charged amount up to the next highest dollar. It then automatically invests that difference in one of five portfolios of low-cost exchange-traded funds (ETFs) based on your risk profile. It offers IRAs as well as taxable accounts, but no tax planning or access to a CFP. Acorns Spend is a debit card that invests based on your spending—using “Found Money” partnerships with merchants like Nike and Walmart to send up to an additional 5% of your purchase toward your investment account.
Where your money goes: a taxable investing account or IRA
Fees: $3/month for taxable and tax-free retirement accounts plus Acorns Spend. $5/month for a family account that includes Acorns Early, an investment account for kids. Fees are in addition to the underlying expense ratios of ETFs.
ETF expense ratios: ~0.04% to ~0.15%
Pro: You can start investing with $5. It’s free for college students. A retirement feature, Acorns Later, allows you to send money to a Roth IRA, a traditional IRA, or a SEP-IRA.
Con: If you start with minimal amounts of money to save/invest, the fee of $1 or $2 will take a relatively large bite out of your Acorns funds each month, at least in the early stages.
Stash
Focus: investing
What it does: This beginner’s investing platform offers a “curated” list of around 400 individual stocks and 70 ETFs. It offers little guidance beyond giving its ETFs nicknames. For example, Stash calls the iShares Core Growth Allocation ETF (0.25% expense ratio) its “Aggressive Mix,” and the iShares U.S. Aerospace & Defense ETF (0.42%) gets the handle “Defending America.” There’s no tax planning and no access to a CFP.
Where your money goes: a taxable investing account or IRA
Fees: $1/month for taxable accounts only, $3/month for both taxable and tax-free retirement accounts, $9/month for all that, plus two accounts for children (custodial trusts that are not 529s), a fancier debit card, and a monthly market insights report. Stash’s fees are in addition to those charged by ETFs.
ETF expense ratios: 0.07% to 0.95% (average: 0.23%)
Pro: Stash offers retirement accounts and socially responsible investments (SRI). It also allows users to buy fractional shares, meaning that rather than spending, say, $275 for a whole share of Apple, you can spend $5 for a fraction of it. And its debit card allows users to earn “Stock-Back”—minuscule amounts of fractional stock in the company you’re patronizing—for purchases, e.g., a sliver of Starbucks stock to go with your coffee.
Con: The $1 to $2 monthly fee and relatively high underlying expense ratios make account growth difficult. Also, the lack of guidance could get beginners in trouble.
Robinhood
Focus: investing
What it does: Essentially, day trading from your phone. It’s free to open an account—and there are no trading or commission fees. This ease of trading could encourage novice investors to trade too frequently. (Again, research shows trading more often can be problematic.) Also, there’s no consideration of personal factors like age and tolerance for risk, no tax planning, and no possibility of access to a CFP.
Where your money goes: a taxable investing account
Fees: No fees or commissions. Investments purchased may have underlying expense ratios. (Premium subscriptions starting at $6/month offer off-hours trading, quicker withdrawals, and trading on margin.)
ETF expense ratios: 0.03% to 1% or more
Pro: No trading fees. It offers a wide selection of more than 5,000 individual stocks and ETFs and, in most states, the ability to buy cryptocurrencies like Bitcoin and Ethereum. Easy-to-use interface, including a web version. It also allows the purchase of fractional shares.
Con: No retirement accounts. No account management provided. Robinhood encourages frequent trading and individual stock picking for novice investors. Speculating on cryptocurrency is particularly risky.
