What's New With Savings--July 2019
What’s new with savings? Once again, apps and technology are the game changers here. As we move away from cash and piggy banks to digital transactions, it makes perfect sense that we are moving to digital forms of piggy banks. In the old days, you could make purchases with dollar bills and put all of your change in a jar or your piggy bank. When using cards or your phone, you need an app to do the same thing.
Research for this piece turned up several “listicles” of top savings apps from all the usual suspects. I had to draw the line at ten for the length of the lists because I don’t understand how it is possible to have a top 33.
Even AARP gets into the act. Its most recent issue included information on Tip Yourself, Digit, Qapital and Acorns for their “over 50” audience. These four apps were all on almost every other list too. Tip Yourself was not on the NerdWallet list. Chime, was the fourth on on their list and made it onto several of the others as well. You might want to check out the app-specific pros and cons provided in each of these lists for yourself.
Nerd Wallet is short and sweet (Chime, which is an online bank with a round-up service, Qapital, Digit and Acorns). Credit Karma and College Investor have 8-9 on their lists, with the College Investor list geared more towards college-age folks, and Credit Karma going beyond the marginal savings apps. Magnify Money’s list is a bit unique in that is links each app on the list to a particular savings goal, like saving for an emergency fund, car, house, vacation, or retirement.
The basic four (or five):
Digit uses an algorithm that analyses your income and spending, and automatically transfers what it thinks you can safely put away automatically from your checking account. Funds go into a separate (FDIC insured) account that doesn’t pay interest, but pays you 1% of the average balance in the account every three months. This service costs $2.99/month.
Qapital links your checking account to a Qapital savings account and transfers money based on rules you set up. You can do rounding up or fixed transfers, but can also come up with all kinds of matching transfers, event-based transfers. Funds go into an FDIC insured account but only pays 0.1% interest, and the fees start at $3/month.
Tip Yourself is designed for the goal-oriented person. You tell the app to tip yourself whenever you accomplish a goal you set up for yourself. Your digital “tip jar” is free to set up, but pays no interest. (I think I would be more likely to use it to fine myself for missing goals.)
Acorns was one of the first with the transaction round-up mechanism design, along with some bank credit card accounts, but Acorns amounts go into an investment portfolio instead of a savings account. You can augment the fund with one-time fixed or recurring transfers. It is quite expensive at $1/month for the average person with a low balance. This app makes sense if you make a lot of digital transactions, or can front-end load the account to make the $1/month reasonable. Once you have $5000 in your account, the charge is 0.25% annually.
Chime is actually an online bank that offers a round-up savings option like Acorns. You must have both checking and savings accounts with the bank. While the savings account associated with the service pays virtually no interest, Chime will match 10% of your account balance annually, up to $500.
Beth Kobliner’s recent review of savings and investment apps included Digit, Qapital, and Acorns as well as other investment apps. I agree with her summary advice:
"My advice: Use them only if you’re sure that fees or a lack of guidance won’t trip you up."
Magnify Money listed Joy as a free alternative to Digit. It too uses algorithms to figure out how much you can safely transfer to savings on any given day. However, you must open the app and confirm the transfer….it is not automatic. This might make some folks more at ease. The account is FDIC insured. However, it is only available as an iOS app.
Smarty Pig was on CreditKarma’s list. It is basically a digital piggy bank, with Sallie Mae being the actual bank, currently paying 1.8% interest. You set your own savings goal and fund it from a linked checking account.
Kid Fund was one of the target-specific apps listed by Magnify Money. As the name suggests, this would be one to use to save for a child’s education. An account is set up for each child and you set the rules you for contributions. One appealing feature is that other folks (friends and family) can easily contribute directly to the account as well. The balance determines the interest rate earned. It is an iOS only app.
Two apps included on the College Investor list have Gen Z and Millennial appeal. The first is Empower Finance. It sounds a lot like an alternative to Mint. It will help with budgeting, aggregate your accounts, and it recently added the capability to set up automatic savings. It is free and pays decent interest. The other app that sounded attractive to those that like to shop online was EvoShare. EvoShare is a cashback app (like Ebates), but instead of sending you a check periodically, the cash back amounts can go towards college or retirement savings directly, or can directly pay down student loans.
Keep the Change is the Bank of America equivalent to Chime and the only other bank-based app mentioned in any of the lists. Several other large banks advertise similar programs. It would be worth asking any bank you use or consider using if they have similar automatic rounding up to savings features with their debit/credit cards.
Banks – interest rate on savings
The highest interest rates are offered by online banks such as Ally and Goldman Sachs’ Marcus, and banks from credit card companies like Amex and Discover. Rates increased to over 2%, versus close to zero on traditional bank accounts. Similarly, these institutions usually have the highest rates on Certificates of Deposit (CDs) as well.
Lifehacker gives you some guidance to searching for a high-yield savings account. This article provided the graphic below comparing high-yield interest rates to rates offered by traditional banks.
To get higher rates from traditional banks, you will likely have to look at their money market funds with much higher minimum investments (usually $25,000). These are still fairly liquid accounts, but the minimum puts them out of reach for most savers.
CNBC discusses the pros and cons of “locking in” higher interest rates by moving money from savings accounts to CDs in light of recent moves by online banks to cut rates back a bit, (USA Today) and market sentiment that interest rates will move downward.
For a comprehensive comparison of the features, pros and cons of savings accounts, Certificates of Deposit, and Money Market accounts, this Bankrate article is a good resource. (Understand that Bankrate articles may contain links to advertising partners, but the information is reliable.)
If you are interested in getting your students to dive into investigating financial apps, NGPF has two separate activities ready for you to use. This Investigate focuses on savings apps, and this Project looks at a wider swath of financial tools
About the Author
Beth Tallman entered the working world armed with an M.B.A. in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducting student workshops, and developing finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.
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