We all know the importance of being financially independent and saving for a rainy day. Why then is saving money so hard? Harvard economics professor Sendhil Mullainathan says it has less to do with a lack of self-control and more to do with a scarcity of attention.

Mullainathan says that current expenses especially those of an urgent nature, consume the majority of our attention and take priority over saving for the future. He says, one of the most effective ways to ensure that saving for the future occurs is to make it happen easily and automatically. This is the principle around with the Acorns app is built.

What is Acorns

Acorns is a mobile micro robo investing app that is described by some as the “The new millennial investing strategy.” The company behind the app was founded on Feb 29, 2012, by Walter and Jeff Cruttenden, a father and son team based in California. They went on to launch the app on August 26, 2014.

Jeff Cruttenden says the motivation to make the app was the result of an observation he made while in college. He observed that even though his friends talked about investing all the time, few of them had investment accounts. What surprised him more was that many of them were economics or finance students.

Jeff is no stranger to investing. He first stock pick happened at the age of 11 at his father’s prompting. Walter is described as a “financial services innovator” and is the founder of Roth Capital as well as the investment banking arm of E*Trade.

Jeff’s college observation led him to summarize the people struggle to invest for three main reasons. “It’s difficult to get enough money together to get started; commissions often make it hard to invest even $100 at a time; and most importantly, new investors face too many choices — stock funds, mutual funds, ETFs. It’s overwhelming if you’re just getting started.”

Together, he and his father set out to solve this challenge and the app they cofounded turned into a serious game changer. It has attracted the attention of investors like PayPal, BlackRock, Greycroft, Ashton Kutcher and Kevin Durant among others. Further proof of their impact was when they managed to raise $23 million in a Series C round of funding just 8 months after being launched.

How Acorns Works

The Acorns app creates an investment portfolio for you either from a lump sum or recurring deposit or by collecting your spare change from purchases made with linked debit or credit cards. What you deposit, is invested into exchange-traded funds (ETFs) across six sectors. Small-cap stocks, large-cap stocks, emerging market stocks, real estate stocks, government bonds and corporate bonds.

The app recommends an investment portfolio (conservative, moderately conservative, moderate, moderately aggressive, aggressive)  based on the personal information you submit. Users, however, have the option to ignore the recommendation and make their own choice. Nobel Prize-winning economist, Dr. Harry Markowitz helped create the portfolios

Invest the Change®

A common misconception about investing is that you need a lot of money to get started. The reality is far from it because of the power of compounding. Compounding can take the little that you have and turn it into a whole lot so long as you accompany it with consistency and patience.

The Invest the Change® feature rounds ups every transaction on a debit or credit card linked to the app to the nearest dollar and invests into the users Acorns account.

Found Money®

Cashback is an attractive benefit that some credit card companies provide. Cardholders get a percentage of their purchase back as a cash reward.  Depending on the rules attached to your cards’ cash back program, you can use the amount to reduce the card balance, redeem it for future purchases, or get it sent to you in the form of a check.

What could be better than investing other people’s money than investing with their money for your own benefit? The Found Money feature uses a similar principle to cash back, but instead of sending you the money it gets puts into your investment account. Acorns refers to this as ‘cash forward.’ They’ve partnered with brands like Apple, Barnes, and Noble, Lyft, Sam’s Club, and Nike among others to offer this benefit to their account holders.

The Found Money® feature can be used in two ways – Simply Spend or Tap and Get. The main difference between the two is that Tap and Get requires you to first access a link in the Found Money section of the app and with Simply Spend you only need to use the card associated with your Acorns account.  Users who take advantage of this feature receive their cash forward rewards within 90-120 days of making a purchase.

Round-Up Multiplier

The standard formula behind the Invest the Change® feature is to round up to the nearest dollar. The Round-Up Multiplier feature gives users the option to round up 2x, 3x, or 10x.

Potential

The Acorns app makes saving and investing easy, but there’s one important factor that you can’t get around. It’s tough to see growth when saving and investing only small amounts of money and therefore easy to get frustrated and quit. The Potential feature helps users see what the impact of increasing the amount of their daily, weekly or monthly contribution would have on their account.

Grow

The Acorns team is just as interested in helping you save as it is in building your financial knowledge. They’ve dedicated a section on their app and website for learning called Grow. Topics include budgeting, credit, debt, earning, financial planning, taxes and real estate among others. They also offer account holders free access to a five-step financial literacy course on Udemy.com.

Gift Cards

$25 non-expiring Acorns gift cards are available on their website or at select retailers. They can be used to encourage friends and family to open and account and start saving or support their current efforts if they are existing account holders.

Acorns Accounts

There are three types of accounts you can sign up for on the app.

  • Acorns – $1 per month management fee
  • Acorns + Acorns Later – $2 per month management fee
  • Acorns + Acorns Later + Acorns Spend – $3 per month management fee

It should be noted that once your account balance reaches $5000, the management fee changes to 0.25%.

Acorns

The features of this plan include  automated investing via the Invest the Change program, smart portfolios that automatically rebalance when the market moves, and the opportunity to

Acorns + Acorns Later

The features of Acorns Later are all about retirement planning. In addition to everything offered under the $1 Acorns plan, this option comes with retirement accounts (ROTH, Traditional, SEP), assistance with rolling over existing 401K or IRA accounts,

Acorns + Acorns Later + Acorns Spend

Acorns Spend  is a checking account with a with a debit card. The account comes with digital direct deposit, mobile check deposit and checks sending, free bank-to-bank transfers, no overdraft or minimum balance fees, fraud protection, unlimited free or fee-reimbursed ATMs nationwide. The account is FDIC protected up to $250,000.

Signing Up for an Acorns Account

Signing up for an Acorns account is straightforward. You can do so on their website, iTunes, or Google Play. The mobile app is available for iPhone or Android devices.

The app is available for all United States residents who are at least 18-years-old and have a valid social security number. It’s also available for Australian residents at acornsau.com.au. No minimum amount is required to open an account, but you require at least $5 to start investing. Accounts take 1-5 days to be opened as the account holders information has to be verified.

Summary

Pros

  • College students with a valid .edu email address get a free Acorns account.
  • $0 required to open an account.
  • Only $5 required to start investing.
  • Diverse educational content to build financial knowledge.
  • Retailer kickbacks let you build your savings with somebody else’s money
  • No limit to the number of debit and credit cards you can link to your Acorns account
  • Acorns customers have free access to a five-step financial literacy course on Udemy.com.

Cons

  • Acorns fees on accounts with small balances can eat into or completely wipe away investment returns.
  • The 0.25% management fee assessed on accounts with balances of $5000 or more is higher than most other investment companies charge.
  • Cannot save or invest for children under 18

Conclusion

Both the name of the app and the strategy behind it are strategic. Acorns generally take over twenty years to grow from a seed to a mature oak tree. It also takes a long time to build a financial nest egg, so the strategy of using spare change was intentionally chosen to encourage people to start doing so early.

The app is best for college students, people who struggle to save or prefer a hands-off approach to investing. The app is available for Apple and Android devices.