We all probably remember – or maybe some of you still have – the jar full of change that we would drop our coins into at the end of the day. I remember as a kid lugging big jars full of change to my local bank, watching them clink around the coin counting machine, and walking out of the bank with cold hard cash. It’s amazing to think that I had a couple hundred bucks sitting around in a jar!
This process of saving up small amounts is called microsaving. Basically, doing a small amount of saving over time (such as gathering up your leftover change) can add up to a pretty decent chunk of money in the end. Add up all your spare change over a year, and you can probably have yourself a couple hundred bucks without doing any work really.
I love microsaving! I think it’s a great way to save a little bit of money into your pocket without even noticing it. I don’t really use cash very often anymore, but I still collect my spare change. I just don’t collect it in a jar. Instead, there are a new wave of fintech apps that have hit the scene in the past few years that make it easy for you to save your spare change. Think of them like a digital piggy bank.
The biggest player in the microsaving app world is probably an app called Acorns. A lot of bloggers rave about it. Basically, the app takes your spare change and invests it for you in a diversified portfolio. Best of all, it has a tiny barrier to entry. You only need $5 to get started investing. That’s awesome, right!?
Well, it turns out its not very awesome at all.
Apps like Acorns have led me to the conclusion that your spare change should be saved, not invested. What do I mean?
How Acorns Works.
The way Acorns works is pretty simple. The app monitors your credit card transactions and rounds up each transaction to the nearest dollar. It then takes that spare change and invests it into a diversified portfolio of low cost ETFs based on your risk tolerance, which is determined from your answers to a number of survey questions you answer when you set up your account.
So for example, if you buy something that is $1.50, Acorns will recognize that transaction and will pull 50 cents out of your bank account and invest it for you in a number of ETFs. Once you reach $5 of spare change, it invests it for you. Pretty simple and straightforward robo-advisor type service in a gorgeous app. What’s the problem?
The Problem With Acorns. Fees!
The problem is pretty simple and known to anyone who is interested in investing. Keep fees low!
For accounts under $5000, Acorns “only” charges a management fee of $1 per month. That’s nothing, right?
It’s not nothing! It’s actually a ton of money!
If you’re paying $1 per month, that’s $12 per year. Let’s say you’ve got $500 of your hard earned spare change invested in Acorns. You’re now paying a management fee of 2.4% just for the privilege of having your spare change collected. That’s ludicrous.
Here’s an example of the management fees you are paying depending on the amount invested in Acorns, in intervals of $500.
$500 = 2.4%
$1,000 = 1.2%
$1,500 = 0.8%
$2,000 = 0.6%
$2,500 = 0.48%
$3,000 = 0.4%
$3,500 = 0.34%
$4,000 = 0.3%
$4,500 = 0.26%
$5,000 and above = 0.25%
As you can see, the fees are extremely high when you’re in the $1000 range and still pretty high until you get to a couple thousand dollars invested.
So while the minimum is $5 to start, that really isn’t a realistic minimum. In that first month, you’d pay 20% of your balance in fees. And I thought CoinStar was a ripoff!
You really need to start off with probably at least $3,500 to be considered paying reasonable fees. So why can’t you just do that?
If you imagine that you’re rounding up an average of 50 cents per transaction, how many transactions are you doing per month? Even if you did 100 transactions per month (which would be about 3 a day, which seems really high to me), you’d only be investing $50 per month. In year one, you’ve invested $600 dollars, and paid over 2% in management fees. That’s just too high and it will take you a pretty long time to reach $3500 using just your spare change. You’re throwing away your spare change to fees!
Couldn’t You Just Initially Put In More Money To Lower The Costs?
Sure you could just put in more money to start. But isn’t the point of an app that collects your spare change to be able to start out with an empty jar and watch it fill up over time?
Also, if you’re using Acorns, I’m willing to wager you’re probably not using it because you want them to be your Robo-Advisor platform. You’re probably really using it because you like the round-up feature and the idea of saving your spare change.
Finally, if you’ve got the money to put in several thousand dollars into an Acorns account, then I’d have to ask the question, is investing your spare change really enough for you to reach your goals? You’re not going to get rich putting away $50 per month, no matter what anyone tells you. The growth on that amount is just too small.
If you’re investing, you need to be saving much more than just your spare change. Instead…
Save Your Spare Change. Don’t Invest it.
I like the concept of microsaving, but your spare change is too small of an amount to realistically invest with it. The real value of saving your spare change is to use it to help fund your short term goals, not as a way to bolster your investment portfolio. That’s because investing isn’t free, it costs money. When you’re investing your spare change, you’re just not putting enough money in for the returns to really outweigh the costs of investing.
You know what is free though? A bank account (if you’re paying a fee for your bank account, please drop that account!)
The way I use my spare change is to fund my “sinking funds” accounts. These are expenses that you know are coming up every single year. Think of things like Christmas gifts, travel, insurance, parking tickets or other stupid mistakes you know you’ll make. You know these things are coming. Wouldn’t it be nice if you could use your spare change to pay for some of this stuff?
The app I use to save my spare change is called Qapital. It has the exact same round up feature as Acorns, but instead of investing it, the money goes into an FDIC insured savings account. It’s completely free and takes 10 minutes to sign up. Every time I make a purchase using my credit card, Qapital rounds my purchase to the nearest dollar (exactly the same as Acorns), withdraws that spare change from my bank account, and puts it into an FDIC insured bank account. Every couple of months, I take that money out (a hundred bucks or so at a time) and stick it in my emergency fund. It costs me nothing and I still get the benefit of saving my spare change!
I was one of the early users of Qapital, so I get a tiny amount of interest on my savings. I don’t think new users are receiving interest anymore. Oh shucks, you lose out on a few cents! Really, the interest doesn’t matter when you’re talking about your spare change, since you’d only be gathering a few bucks of interest per year in a standard high yield savings account anyway. It also really doesn’t matter because you’re using your spare change to fund your sinking funds accounts, which should be set budget expenses that come up each year. In other words, you’re using your spare change within a year anyway, so the interest doesn’t really matter.
I’ll have a more thorough post in the future about Qapital, why I recommend it for anyone who likes the concept of microsaving, and how I use it in my day to day life. If you have any interest in opening up a Qapital account, feel free to use my referral link and we’ll both get $5. If you’d rather not use my referral link, just go to Qapital’s website and see if it’s for you.
My Takeaways:
- Your spare change can add up over time.
- Management fees from microsaving apps, like Acorns, are way too high if you’re only investing your spare change.
- Save your spare change and use it for regular annual expenses (your sinking funds accounts). Don’t invest it.
Note: I don’t work for Qapital and have absolutely no affiliation with them. I just discovered this app sometime last year and thought it was a superior alternative to Acorns for those of us that like rounding up our transactions and saving our spare change. This post was inspired by a Twitter conversation I had with Super Millennial, who can be found at his terrific blog, supermillennial.com.
What do you think? Do you invest your spare change or do you just save it?
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on October 31, 2022. As long as you get your account opened before October 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Fifth Third Bank ($250) – This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account online but you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements. Read my guide on this bonus here.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s now scheduled to end on October 31, 2022.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
I save my spare change and after reading this post will continue to do that. I love looking at things in terms of percentages rather than the raw number. Oh $1 is nothing right? Then you turn around and look at it from a percentage standpoint and the number is massive as you just showed.
Totally see your point on this post – however I do use Acorns and the main reason is I have the next 2.5 years of fees covered by referral commissions – that combined with the convenience/automatic nature makes it worth it for me. If you can refer a few people (definitely not getting rich off the app) it doesn’t seem quite as unreasonable.
The fee is high if you don’t get referrals and even then is high for low balances
One thing that needs to be weighed is the cost to dollar cost average small amounts of money, trading costs range form $5-10, acorns invests multiple times a month for a buck – if you look at it that way it doesn’t seem as crazy
If you’ve got your fees covered, then sure, it’s just essentially another microsaving app. My guess is most people don’t have that many referrals and aren’t in a position to put several thousand dollars into the app to make the fees reasonable.
You make a good point that there really is no other way to DCA tiny sums of money like in Acorns.
One thing is, how much is really saved per month from roundups. If you are like me, it’s probably around $30 or so of change. I guess to me, I’d rather use the spare change to fund more immediate needs. Maybe I just don’t see what investing $30 or so a month really does. It just doesn’t seem like enough money to do anything in the investing front, even when stretched out really long term.
I didn’t mention this either, and haven’t looked into it, but another issue I thought of is Acorns could potentially complicate your taxes due to all the tiny transactions?
How tiny are we talking about? Loyal3 lets you invest in partial shares with as little as $10 at a time with no fees, so why not use that?
I agree, though, that I don’t side the purpose of continually investing small amounts, except in my 401(k) where it’s just 3% of the paycheck or whatever.
it does seem like an extra headache a tax time with something like Acorn, but TurboTax import generally takes care of that.
I actually use Loyal3 for some of my play money. I couldn’t resist buying some twitter stock, so I actually just bought a tiny amount using Loyal 3. You won’t get rich investing a few hundred bucks into stocks on Loyal 3, but it is a way to be able to not feel left out when people talk about their genius stock picks.
Now that I’ve used Acorns for a bit, I can comment on the tax side of this. You don’t have any tax complications UNLESS you cash out your account or make any withdrawals. So long as you don’t withdraw any money, you don’t have any tax obligations. When you make a withdrawal, that’s when you get tax forms from them. I’ve been with them for about 5 years, and the only tax form I got was the one time I pulled money out. At that point, it’s like you sold stocks. And, just to be clear, this form you get forces you into the more expensive version of TurboTax as the free / cheap levels are too basic to apply to you if you have that stock tax form (1099-DIV, I think). All those mini transactions they do on your behalf don’t count as any kind of tax liability unless you take cash out.
I use my quicksilver cash-back card for my round-ups, as well as my checking account. I pay the balance on the cc twice a month, so I’m not paying any interest. The money I make from my cash back covers my annual acorns fee in just a few weeks. I’m very new to investing and for me, I think it’s a decent decision.
I will say that if it gets you investing, definitely not a bad idea. I just haven’t been able to figure out how you can make money if the fee basically takes away all of the spare change.
Hi can anyone tell me about Qapital? I want to save my spare change there, but it looks like or at least I think . I have to open a debit card with them or put so much of my money besides spare change in the account in order to use the Qapital app, but I may be misunderstanding what I’m reading. Can I just out my spare change in Qapital and have no other connections as in debit card with them?
Thank you
Qapital is no good now. They charge a monthly fee to use it, which is stupid. I need to update this post.
If you’re looking for a roundup app, consider trying Astra Finance. That app is awesome so far. Dobot is another app that is worth using.
Qapital seems to have wised up. They don’t charge, after all. I got all the notices that I was going to start getting a fee, but then it never happened. 🤷🏽♀️ I was ready to yank my money out, but I guess I’ll leave it be for now.
Unfortunately, Dobot is gone now. By 6/30/2021, it’ll be officially pulled from the app stores. Their affiliate savings bank apparently now does the same thing so they no longer feel the need to exist.
I was hesitant to sign up for Acorns because of the fees you mentioned. However, I finally saw something rarely mentioned. If you sign up using a school email (ending in “*.edu”), then there are NO fees for 4 years. So my intent is to use Acorns for four years (I am a returning college student). As a free app, this is totally worth it. After four years, I will withdraw all funds, close the account and reinvest in probably another Wealthfront account since they manage your first $10k for free (plus an additional $5k for each referral). This way I get the benefits of the round-ups, the return rates of investments, and all without the fees. After 4 years, I’ll probably try out something different like Qapital or maybe something new that’s surfaced by then.
**Side note: Wealthfront is one of those hands-off investment accounts for people who want to invest but don’t want to do the legwork – all fully-automated, no human investors, based on your personalized risk factors, etc. If you read this and want to give them a try, please use my referral link and we both get an extra $5k covered for free: https://wlth.fr/1WLip2w (I know, shameless plug, but hey, we both benefit!).
Very, very interesting. I have been thinking of getting into investing and after reading the comments I am sold even more. I just don’t know where to start I am not a ruch man by any means in fact I do not work because I am disabled. But I would like to invest small amounts of money here and there hoping in the long run it would wind up building into something significant. Any idea of where to start. I would like the leg work to be done as my disability limits my abilities in that area.