A 2019 survey from Bankrate asked people why they weren’t saving. While high expenses were the biggest barrier, the second most common reason might surprise you: they just haven’t gotten around to it.
Creating a savings plan, especially if you’ve never done it before, can feel overwhelming and intimidating. You have to decide how much to save and the best place to open a savings account. With work, kids, and regular chores, it can be hard to find the time and money to make saving a priority.
That’s when the Digit app comes in. Digit is an app that automates savings so you don’t have to think about it. It takes just a few minutes to set up, and you don’t have to visit a bank to open an account.
But you should understand how Digit works before you sign up – and before you pay the $5 monthly fee.
What is Digit?
Digit is an app available both on iPhone and Android devices that automatically transfers money from your bank account to a Digit savings account. Digit decides how much to transfer by evaluating how much money is in your bank account and how much you normally spend. You can also save manually on top of the automatic contributions.
One day it might transfer $5, the next day it might transfer $1. If your account balance is below a certain threshold, it might not transfer anything.
You can withdraw the money in your Digit account at any time without any fees. Unlike a regular savings account, you can withdraw as many times as you want from Digit.
For new users, Digit costs $5 a month, and you can cancel anytime. The money is FDIC-insured so there’s no risk of losing your money. Digit also encrypts bank account information and has no history of hacks or data breaches.
Digit has a 4.4/5 rating on the Google Play store and a 4.7/5 rating on the iPhone app store.
Digit works with more than 2,500 banks so there’s a good chance it will connect with your bank account.
How Does the Digit App Work?
To use Digit, you’ll create an account using your phone number and link your bank account app. You link your bank using your online login, not your routing and account numbers.
Once the accounts are linked, Digit will start making regular transfers. This is done automatically, but you can also manually transfer money from your bank account to Digit. This can take up to three business days to process.
Digit will make transfers unless it thinks doing so will overdraw your account. In case an overdraft does occur, it’ll reimburse you up to two overdrafts.
To prevent overdrafts, you can set up a safe saving level, which is a threshold that tells Digit when to stop making transfers. Users can also pause Digit anytime they want for up to 60 days. Users will receive a notice one day before the pause period ends that Digit will resume transferring money. At this point, you can let Digit continue or ask it to pause withdrawals again.
What makes Digit different from a savings account?
Unlike a traditional savings account, users don’t earn interest on the money in a Digit account. However, if you do save regularly with Digit, it’ll deposit a 0.25% bonus every three months in your account based on your average daily balance.
This is lower than what most high-yield savings accounts pay. For example, a customer with an average of $4,000 would earn a $10 bonus every three months, or $40 per year. A customer who had that money in an account earning 1.5% APY at a bank would earn $60 per year.
Opening a traditional savings account is slightly more time consuming than Digit, and although both Digit and traditional savings accounts are free to open, most other savings accounts don’t charge monthly fees. But if you choose an online savings account, then you don’t have to visit a bank in person.
Digit lets you save for different Goals, including emergency funds, vacations, Christmas gifts, and more. You can either set a specific end date and goal amount or just let Digit automatically transfer money without a particular goal in mind.
You can set multiple Goals with Digit as well and pause these if you need to.
Digit has expanded its services to offer a Retirement savings feature. Digit will open an IRA, either a traditional or a Roth, for you and start saving.
If you already save for an IRA elsewhere, you’ll need to monitor these contributions to make sure you don’t end up saving more than the annual contribution limits. In 2020, the contribution limits were $6,000 for IRAs or $7,000 for those 50 and older.
Digit will automatically choose which funds to invest for you based on your age, salary, and a few other questions. Digit chooses low-cost Vanguard funds, which are popular and reputable.
You can set a maximum limit of how much Digit can save in your retirement account.
Related: How and Where to Open an IRA
Credit card reduction
Digit now has a feature that transfers money in your Digit account to a linked credit card to pay off credit card debt. Digit will transfer money regularly from your bank account and once a month, it will send the saved amount directly to the credit card.
It usually takes three to five business days for the money to be posted to the credit card account.
Is Digit Worth the Cost?
One common question people have about Digit is “Why would I pay $5 for an app to do something that I can do myself?”
If you’re good about saving money either by automating your savings or manually transferring the money, you probably don’t need Digit. It is designed for the millions of Americans who can afford to save but don’t. If you know you should be putting money away for an emergency fund, but can’t remember to do it, then Digit may be worth the cost.
Think of it like paying for a personal trainer. Yes, you can go to the gym yourself, but sometimes it helps to have someone keep you accountable.
Alternatives to Digit
If you don’t like the idea of paying $5 a month for Digit, there are less expensive alternatives that will also make saving and paying off debt easier.
Open a saving accounts
Savings accounts generally don’t come with a monthly fee, making them a cheaper alternative to Digit. Some, like Ally Bank, let you open multiple savings accounts to use for different goals like sinking funds.
The difference between a bank like Ally and Digit is that you have to manually transfer the money or set up your automatic transfers. The bank won’t do it for you.
Pausing transfers is free but may require a couple more steps than using an app like Digit, and you’ll have to remember on your own when to restart them.
If you’d prefer having your own savings account through a traditional bank, make sure you do your research to find the one with the highest interest rate.
Qoins is an app that rounds up purchases to the nearest dollar and uses that money to pay off your debt. Qoins can work with several types of loans including credit card debt, student loans, auto loans, and even your mortgage.
Qoins costs $1.99 a month, so slightly less than Digit. Like Digit, it automatically sends money to your account every month on the payment due date. While Digit has some debt reduction features, Qoins is focused on debt repayment more than savings.
Acorns is a round-up savings app that lets you invest the money you round up. The difference between Acorns and Digit is that Acorns invests your money in the stock market rather than saving it in a savings account.
While Acorns can work by just rounding up transactions to the nearest dollar, you can also “Boost” them by as much as 10 times. If you buy something for $2.95, Acorns would normally round up the transaction to $3 and save 5 cents. But if you boost that by 10 times, it would save 50 cents.
You can also open an IRA with Acorns to receive tax benefits.
Acorns has the following pricing structure:
- $1 a month for basic accounts with round-up investing
- $2 for accounts with access to IRAs
- $3 for accounts with an Acorns checking account
In addition to paying the monthly fee and round-ups, you can also schedule recurring transfers to your Acorns account.
Apps like Digit Can Help You Save Money
Think of an app like Digit as a bicycle with training wheels. It’s there to get you into the habit of saving money and once you get used to it, you can transition to opening one or several savings accounts to use as sinking funds. You can also set up a retirement account with a robo advisor or hire a financial planner to help you.
If saving money isn’t a strength of yours, paying for an app like Digit can help. It can take all the stress out of saving and simplify the process. But if you prefer to have more control over when and how much you save, then opening a savings account at an online bank may be a better option.