January 9, 2021

How Acorns Actually Makes Money

Read more about Acorns
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Acorns makes money through subscription fees. Read this review to find what the micro-investing app charges every month.

Acorns can get newbies into the habit of saving and investing by rounding up spare change from daily purchases.

For example, if a pair of Nikes costs $75.60, the app will round it up to $76 and invest the difference for you ($.40). Acorns' automated portfolios let you invest in ETFs, stocks, bonds, or real estate without even having to think about it. The app is simple, intuitive, and hugely popular with young adults.

Acorns turns a profit by charging users a monthly flat fee for basic investing and banking services. The platform offers 3 packages at $1, $3, or $5 per month.

Before you sign up, take a look at their fees and features to find out if the services justify the cost.

How Much Does Acorns Cost?

Acorns has three subscription tiers:

  1. Lite: $1 per month

    Features included:

    • Acorns Invest
    • Acorns Found Money

    Acorns Invest: Invest your spare change into a diversified portfolio of over 7,000 stocks and bonds. The app will automatically rebalance your portfolio and reinvest dividends for you. You need at least $5 in your account to start investing.

    Acorns Found Money: Earn extra cash for your investment account when you shop with Acorns' 350+ retailer partners. Purchases must be made with a credit or debit card linked to your Acorns account.

  2. Acorns Personal: $3 per month

    Features included:

    • Acorns Invest
    • Acorns Found Money
    • Acorns Later IRA
    • Acorns Spend

    Acorns Later: Plan for retirement with a Traditional IRA, Roth IRA, or SEP IRA. Acorns will automatically adjust your investment portfolio from riskier (mostly stocks) to more conservative (more bonds) as you reach retirement age.

    You need at least $5 to invest in an IRA. Round-ups cannot be added into IRA accounts, so you need to set up recurring contributions.

    Acorns Spend: This checking account includes direct deposit, mobile check deposits, online bill pay, and a metal debit card. You also get access to 55,000+ fee-free ATMs around the world and there are no overdraft fees.

    The account is FDIC-insured (translation: financially backed by the government for up to $250,000 for cash balances).

  3. Acorns Family: $5 per month

    Features included:

    • Acorns Invest
    • Acorns Found Money
    • Acorns Later IRA
    • Acorns Spend
    • Acorns Early

    Acorns Early: Set up UTMA/UGMA custodial investment accounts in your child's name. The minimum to invest is $5. There are no withdrawal penalties for an Early account if the funds are used to benefit the child.

Now that you got an idea of what's included under each plan, let's dive into what those fees might mean for you.

Are Acorns Fees Reasonable?

Acorn's pricing is very straightforward, but there are a couple things you need to be aware of:

  1. The flat fees are NOT worth it if you have a small balance.

    If you get the basic $1/month plan, the annual cost is $12. Sounds like a bargain, but if you have $100 in your account, fees will eat up 12% of your savings.

    In comparison, other robo-advisors, like Betterment, charge a 0.25% service fee to cover portfolio management and trading costs. Plus, they offer more robust features, such as tax loss harvesting.

    You would need to have a $5,000 balance for Acorns to be cheaper than Betterment. In this scenario, the $12 annual cost breaks down to 0.24% of your account value.

  2. Loose change investing won't dramatically improve your financial situation.

    Yes, it's a cool concept, but you can't retire on dimes and nickels alone. Any stock market gains will be minimal with just a few bucks invested. Once you learn the ropes, you should set up recurring, substantial deposits.

    You can also amplify your spare change on each transaction with the Round-Up Multiplier. Round-ups are multiplied by the amount of your choice (2x, 3x, 10x).

    So, if your lunch is $10.70, the difference invested would normally be $.30. But if you set the multiplier to 3x, you can invest $0.90 instead. It's still spare change, but you'll earn money at a much faster rate than with the regular round-ups setting.

Acorns' fees are extremely high if you keep a small balance. But if you can't save or invest on your own, Acorns could be worth a peek. Keep reading to learn more about how the app works.

How Does Acorns Work

Founded in 2012, Acorns is a fintech company that lets users set up automated investments into a portfolio with round-ups. The company rounds up purchases made on your linked debit or credit card to the nearest dollar and invests the spare change for you.

The app specializes in automatic savings, micro-investing, and robo-advising. This appeals to people who are new to investing or just starting to build their nest egg. The company's mission is to help people invest early, often, and with little effort.

Acorns offers five main services:

  • Acorns Invest: Round up and invest your spare change
  • Acorns Found Money: Earn bonus investments when you shop with select retail partners
  • Acorns Later IRA: Plan and save for retirement
  • Acorns Spend: Checking account with a debit card and ATM access
  • Acorns Early: Investment accounts in your child's name

Today, over 4.5 million people have joined the app and Acorns has over $1.2 billion in assets under management.

Does Acorns Actually Make You Money?

Acorns can net you decent savings, albeit at a slow pace. To speed things up, be sure to set up recurring deposits and link your credit or debit account to earn bonus investments from Found Money retail partners.

If you're hesitant to invest on your own, Acorns lets you set up automated portfolios in ETFs, stocks, bonds, or real estate.

However, other robo-advisors, like Betterment or Wealthfront, have much lower management fees for small balances. And online brokers like Robinhood have no commission fees at all if you're willing to manage investments yourself.

You won't be able to retire comfortably off of spare change alone. The app helps you make the first move, but you'll need to supplement with regular contributions or other saving and investing accounts.

Investments always bear a risk of losing money, so your account value might go down. In the long run, the historical average stock market return is 10%. You might also earn dividends from your investments.

In short, if you have trouble saving regularly, Acorns can be a great option. But if you're an experienced investor or have more to invest, check out more powerful tools like Robinhood, Ally Invest, or Betterment.

Bottom Line

Acorns offers flat banking and investing services in exchange for flat monthly membership fees. $1, $3, or $5 per month may not seem like a lot, but if your balance is small, it's a huge cut of your savings.

Your choice to sign up with Acorns will depend on how much you'll have in your account and whether you want to manage investments yourself. Keep in mind, your spare change won't get you very far and you still need to deposit larger amounts on your own.

If you don't currently save or invest, Acorns can help you build those habits. Just don't rely on the app for all of your banking and investment needs.

Once you have more capital, level up to more tried-and-true platforms like Vanguard ($50,000) or Fidelity or try a robust, less expensive fintech company such as Robinhood or Betterment.

Donna Tang is the head of purpose and audience at CreditDonkey, a personal finance comparison and reviews website. Write to Donna Tang at donna.tang@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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