If you have read any financial news about easy ways to invest your money, chances are you’ve heard of the Acorns App. But is Acorns worth it?
What is Acorns?
Acorns is a mobile app and website which helps its users take the difficulty and unknown out of investing. It is a micro-investing app that uses a strategy known as spare change round-ups to invest small amounts of your money into different risk-based ETFs.
Although the Acorns app started out as simply a micro-investment strategy, it has now evolved into an entire platform of banking, investment, and retirement functionality.
Is Acorns Legit
Acorns is legit and not a scam. The platform supplies users with secure account access and delivers the proper IRS tax forms at year-end for capital gains purposes. Acorns operates by the guidelines they advertise on and can be trusted as much as any other financial institution.
Is Acorns Safe
Acorns is about as safe as any other banking site out there. Their investment accounts are SIPC Protected up to $500,000 and their checking accounts are FDIC insured up $250,000.
In terms of cyber security, Acorns is safe and taking the necessary precautions to keep your information private. Their app has SSL Encryption and alerts you for unusual activity against fraud. Their banking is done over secure servers with automatic logouts and ID verification.
It is possible for your personal information to be stolen through hacking, but this is true for all online financial institutions. By offering insured accounts, Acorns should be considered a safe platform to use.
Now that you know Acorns is legit and safe, hopefully by the end of this review you will be able to determine if Acorns is worth it as an investment vehicle for your money.
Who Should be Using the Acorns App?
Acorns is worth it for those who prefer to take a hands-off approach to managing money. The user picks a willing risk-tolerance and Acorns will pick the portfolio mix. The platform is very user friendly for novice investors, but can work for any experience level.
How Do You Start Using Acorns?
Acorns Invest, their basic account, works by signing up and linking your associated credit and debit cards to an account profile. The app will then monitor your purchases on those cards, round-up each transaction to the nearest dollar, and invest that fraction into a chosen portfolio based on your investment risk tolerance.
This micro-investing strategy is known as “Round-Ups.”
How Do Round-Ups Work?
For example, you spend $3.70 on a coffee, Acorns will theoretically round that purchase up to $4.00 and set aside $0.30 towards your account. Once the round-ups add up to a minimum of $5 or a larger chosen amount, the money will be transferred from your linked checking account and invested into a fund of your choosing.
All you have to do is make everyday purchases and let the Acorns app do the rest!
Different Types of Acorns Accounts
As the platform has grown, they been able to continually offer different accounts to make Acorns worth it for their users. Don’t get overwhelmed, they still keep it simple with their account types and fee structure.
They have a total of 3 different plans, each offering different accounts.
Acorns Lite Plan: $1/month
The Acorns Lite plan is is the site’s “bread and butter” and gives you an Acorns Invest account. It is essentially a micro-investing brokerage account.
Acorns Invest allows you to invest round-up quantities, single, or reoccurring contributions into a portfolio chosen by you. Your money can be invested in one of the five ETF risk-portfolios offered.
You supply the funds in the the form of round-ups or contributions and the fund managers invest your money into different ETF’s to give you a diversified portfolio.
Money in your Acorns Invest account can be withdrawn at any time, but will usually take 3-6 business days to receive the funds. The reason for this is because your portfolio is comprised of Stocks and Bonds that must be sold in order to get your money.
Acorns Invest most closely resembles a managed private brokerage account. Remember any money made will count as capital gains and taxes will be owed come filing time.
Acorns Personal Plan: $3/month
The Acorns Personal Plan is an investment, retirement, and checking account all-in-one. The Personal Plan includes the following:
Acorns Invest account is the same as what the Lite plan offers above.
Acorns Later is retirement-based account that will invest your money in an IRA(Individual Retirement Account).
Acorns will choose between three IRAs (Traditional, Roth, or SEP) depending on your employment status and the IRS personal income rules.
Your retirement portfolio will automatically adjust its risk based upon your chosen retirement age and the amount of time until that date. Changes to this can be made manually if you are not happy with your investment mix.
Unlike Acorns Invest accounts, the money in this account can only be withdrawn after the age of 59 ½. Any funds withdrawn before that age will be subject to a 10% IRS early withdrawal fee.
Acorns Later does not allow round-up quantities to be invested in your retirement portfolio. Instead, dollar quantity contributions can be made up until the IRS set limit for IRAs.
Acorns Spend is a sponsored checking account with an Acorns linked debit card.
The Acorns Spend account is still in its infancy, but the included Acorns debit card allows real-time round-ups into your Acorns Invest account.
Acorns Spend has a checking account that works similar to most banks. It allows for fee-free or reimbursed ATM withdrawals, Digital direct deposits, mobile check deposit, and free bank to bank transfers.
You will get some perks by using the Acorns debit card for qualified purchases through affiliated companies with Acorns Earn.
Acorns Family Plan: $5/month
The Acorns Family plan offers everything included in the Acorns Personal Plan with the addition of Acorns Early.
Acorns Early is an investment account for your children. The account will be classified as a UTMA/UGMA. This stands for Uniform Transfers to Minors Act/Universal Gifts to Minors Act.
Acorns Early accounts allow you to save/invest for your child, but you will have full control until the child reaches adult age.
The account does not have the tax benefits that a 529 Saving Plan offers, but the account will only be taxed at the child’s income bracket which will most likely be a tax savings.
UTMA/UGMA’s accounts are considered the child’s asset and may have negative effect in qualifying for financial aid. On the other hand, this account can be used for any purchases deemed beneficial for the child and not just educational expenses like a 529 Savings Plan making Acorns worth it in this scenario.
Acorns Earn Partnership
Acorns Earn used to be known as Found Money. Acorns Earn is affiliated with 350+ partner companies that invest money into your Acorns Invest account for store purchases that are made with your Acorns linked credit or debit card. You can think of it as Acorn’s version of cash-back purchases.
Purchasing merchandise from one of the affiliated partners will trigger a percentage or flat rate reward deposit (dependent on partner agreement) into your Acorns Invest account. The deposits normally take place 30-90 days after the purchase is made. This perk makes Acorns worth it if you do a lot of shopping with their affiliated partners.
Percentage based rewards can range from the low single digits up to 15%. Flat-rate rewards can be a couple of bucks to $200+ depending on if you are signing up for memberships and other higher-cost programs.
- $1/month: Acorns Lite
- $3/month: Acorns Personal
- $5/month: Acorns Family
Investors like to use the word expense ratio when comparing how much a fund is charging you to invest money. Many funds will charge a percentage based expense ratio with a minimum starting balance of say $5,000.
Acorns on the other hand, is geared toward the investor who is just starting out. They allow a no-minimum starting balance and charge a flat fee up until your account reaches $1,000,000. Pretty awesome for the average Joe right?
Not so fast, the flat fee is good and bad. The smaller your account balance is, the bigger the $1/month flat-fee makes your expense ratio. This means it is costing you a higher percentage for them to manage your account.
A $1 per month fee with an account balance of $100 at the end of the year will have an expense ratio of 12%. This is an extraordinarily high expense ratio! A good portion of your investments is going straight toward fees. Ugh!
Don’t fret, things get better with time!
If you were to get your account balance to $5,000 through either round-ups or contributions, your expense ratio would drop tremendously.
A $1 per month fee with an account balance of $5000 will now have an expense ratio of .24 %. A .24% expense ratio is now starting to fall in the range of a reasonable rate for an investment fund.
As you can see, the larger your account balance, the lower your expense ratio becomes. Once you hit the one million dollar mark, Acorns will start charging you a .25% expense ratio again.
Is Acorns free for college students?
Acorns used to allow college students to signup for a fee-free Acorns Invest account with a valid .edu email address. As of October 2019, Acorns is no longer offering this college student discount.
Their reasoning is that even the $1/month fee provides great value for their customers.
So is acorns worth it for college students after the discount has been taken away?
Acorns does provide some financial education advice which will benefit some, but the allure of no fees is definitely gone!
Acorns give their investors a choice of 5 different funds to choose from for their Acorns Invest account. These funds are based on risk-tolerance levels. Choosing a risk category is the most complicated decision you will have to make.
Each person’s risk tolerance is different. Numerous factors such as the time until retirement, financial stability, and money goals will be the driving factor toward selecting a risk-tolerance.
Each fund is made up of a group of ETFs or Exchange Traded Funds. The makeup of each portfolio is chosen by professionals. Obviously, the Aggressive Fund should theoretically give you the greatest returns, but also possesses assets that make it the riskiest choice.
Check out the charts below to see an example of the conservative and aggressive portfolio mixes based on risk-tolerance.
Acorns Tax Forms
List of possible Acorns Tax Forms:
- Form 1099
- Form 5498
An Acorns Invest account is a taxable investment account. You will be held responsible to pay taxes on any assets that are sold for a gain throughout the year.
1099DIV: Unfortunately, even if you do not withdraw or sell assets, you could be held liable for capital gains tax. Dividends from owning stocks along with portfolio rebalancing can earn you income that will be needed to be reported in the form of a 1099DIV form.
1099MISC: This form may be needed if you have made referral money from the App or received funds from the Earn Money Partnerships that Acorns is associated with.
1099R: This form will be needed if you make a withdrawal from your Acorns Later tax-advantaged retirement account.
IRS-1099 forms are very common in the investing world and can easily be added to even automated services such as TurboTax.
5498: This form will be completed by Acorns and keeps track of your contributions made to Acorns Later retirement accounts. It will be a copy for informational purposes only.
Please be aware that stocks, bonds, and assets fluctuate in price. Your portfolio has the possibility of decreasing in value. If this is a big concern our yours, Acorns is definitely not worth it in this category.
Never invest money that you cannot afford to lose. Do not let this scare you, investing should be a long-term game that will make you money with time.
Is Acorns Worth It
Overall, Acorns is worth it if you plan on using the entire platform for investing, retirement, and banking all-in-one. However, it has extremely high fees for simply using the app for round-up micro-investing when account balances are under $5,000.
For those that have concerns about its safety, Acorns is legit and can be trusted to invest your money in. They are taking the proper security precautions to keep your information safe, but that does not mean they are immune from threats such as hacking.
The Personal Plan, at $3 per month, offering an IRA, checking account, investment account, and educational resources start to make Acorns a good deal in my opinion.
Keep in mind that Acorns is designed for the investor who really wants to take a hands-off approach. If that is the strategy you are looking for, Acorns should suit you well.
However, if you are looking for endless fund options and stock choices to invest in, a traditional brokerage house or a different Robo-Advisor may be more your cup of tea.