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Acorns Review

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by Derek Silva Updated
Acorns

Acorns is a robo-advisor whose service is based on the old idea of saving your spare change. This robo-advisor rounds up all of your credit or debit card purchases to the nearest dollar and then invests that change into a portfolio of ETFs. Everything is done online and everything is automated so you don’t have to worry about a thing. The service specifically targets millennials who have a difficult time saving money or who are new to investing. College students can invest for up to four years with no management fee. The company is growing rapidly but should you consider using it to invest your money?

Best for

College students with little or no regular income; People who are new to investing

Drawbacks

Not many account types; No retirement accounts

Pricing: How Much Does Acorns Cost?

Option Name Management Fee Minimum Balance Features
Balances under $5,000 $1 $0 $1 per month for account balances with less than $5,000
Balances over $5,000 0.25% $0 0.25% for accounts with more than $5,000

Balances under $5,000

Management Fee
$1
Minimum Balance
$0
Features
$1 per month for account balances with less than $5,000

Balances over $5,000

Management Fee
0.25%
Minimum Balance
$0
Features
0.25% for accounts with more than $5,000

There is no minimum payment required to open an account, but you need at least $5 to start investing in a portfolio of ETFs. Accounts with less than $5,000 are charged a management fee of $1/month. Accounts with $5,000 or more are subject to an annual management fee 0.25%, which is in line with management fees from other robo-advisors. College students with a valid .edu email benefit from no management fee for up to four years from the time of opening their account. The company does not charge any trading fees, transfer fee or closing fee.

Acorns' Investing Strategy

How is your money actually invested? Like most robo-advisors, the company uses an investment philosophy called modern portfolio theory. The whole idea of modern portfolio theory is investing in a diversified portfolio, across multiple asset classes, in order to maximize your returns. The father of modern portfolio theory, Harry Markowitz, is an advisor for Acorns. How’s that for bragging rights?

Acorns Homepage

Acorns uses ETFs from six asset classes and varies them based on your risk level and investing goals. It offers fewer asset classes than some other robo-advisors, and the way the company decides how to allocate your money across those six classes isn’t completely clear. Some robo-advisors, like Wealthfront and Betterment, provide detailed explanations of their investing strategies. Acorns operates more on the principle of “let us worry about the technical details.” However, this may not be so bad for its target market of young people who may not know a lot about investing or creating balanced portfolios.

Acorns only offers individual taxable accounts, but you can choose between five investing goals. These goals include general savings, long-term investment, short-term investment, saving for children and saving for a major purchase. You can also choose between five different levels of risk tolerance: conservative, moderately conservative, moderate, moderately aggressive and aggressive. There’s no minimum payment to open an account but you will need at least $5 to start investing in a portfolio.

Supported Accounts

  • Personal savings

Unsupported Accounts

  • Traditional IRA
  • Roth IRA
  • SEP-IRA
  • 401(k) rollover
  • Joint savings
  • Trust
  • 529 college savings
  • 401(k)

Key Features

The target market is college-age millennials who are new to investing. One feature geared toward that market is no management fees for accountholders with a valid .edu email address. This offer lasts up to four years from the time you open your account and could really help you save extra money in college – a time when many people are not even thinking about investing.

Acorns Investment

The company’s main strategy to help you save money is with roundups. Roundups work by rounding up your purchases to the nearest dollar and then investing that money into your account. So if you spend $5.50 with your credit card, Acorns will round that up to $6 and invest the difference of $0.50 into your portfolio. This strategy won’t necessarily add a lot per transaction (it invests $0.50 whether you spend $5.50 or $500.50) but roundups can add up over a few years. Roundups apply to all credit and debit cards linked to your Acorns account. You can link an unlimited number of cards. If you don’t want roundups to be invested automatically, you can manually go through your purchase history to choose which transactions to round up and invest.

Found Money® is a useful feature that allows you to get money (right into your Acorns portfolio) by spending money with the company’s partners. An example of Found Money® could include a company that invests 5% of every purchase into your account. There are currently two kinds of Found Money® transactions. For “Tap & Get” offers you have to go through the Acorns app and then make a purchase through your mobile phone. For “Simply Spend” offers you just need to use your Acorns-linked card to make purchases with partner brands. Found Money® offers only exist for companies that partner with Acorns, but there are currently a number of well-known partners, like Groupon, Airbnb, Apple, Walmart, Hulu, SoFi, Blue Apron and The Wall Street Journal.

Who Acorns Is For

As mentioned earlier, this robo-advisor is geared toward millennials and young investors. College students particularly benefit and might qualify for no-fee management for up to four years. Ultimately though, the company is about helping you save money. People who just find it difficult to put money into savings could benefit from an account. Maybe you tried investing in the past but couldn’t remember to regularly transfer money into your account. This service automates everything so that you don’t have to worry about transferring money on your own. It's also an affordable option if you don’t have much to put toward investing. The minimum investment is only $5.

Services are completely online. This is great for someone who doesn’t want or need to meet with a real person to talk about their investments. If you are a serious investor who wants to invest in ETFs across many asset classes, you will find better robo-advisors. You also shouldn’t use this robo-advisor if your primary interest is investing in retirement accounts because it doesn’t offer any.

Available Features

  • Automatic Rebalancing
  • Fractional Shares

Unavailable Features

  • Tax-Loss Harvesting
  • Direct Indexing
  • Human Advisors

How Acorns Works

You can open an account for free by going to either its website or its mobile app. Its mobile app is its bread and butter, and has won multiple awards for its attractive design.

To set up an account, you will need to enter some personal information, link a bank account to Acorns, set up your portfolio goals and indicate your risk tolerance. There are only individual taxable accounts available, but you can choose between a number of investing goals like short-term, long-term or just a general investing portfolio. You can also choose between five different levels of risk tolerance: conservative, moderately conservative, moderate, moderately aggressive and aggressive. There is no minimum payment to open an account but you will need at least $5 to start investing in a portfolio.

Acorns Portfolio

The biggest part of the company’s investing strategy is roundups. You can start making roundups by linking credit and debit cards to your Acorns account. What are roundups? When you make a purchase with an Acorns-linked card, the company will round the purchase up to the nearest dollar, withdraw that difference from your bank account and invest it into your portfolio. If you spend $5.50 with your card, it will round that up to $6.00 and invest the difference of $0.50 into your portfolio.

You can link an unlimited number of credit and debit cards to your account. Acorns will invest roundups automatically but you can also choose to manually invest. Manually investing would require you to go through a list of your purchases and decide which purchases you want to be rounded up and invested. At any time, you can also transfer lump sums of money from your bank account into your Acorns account.

What’s the Catch?

This service is not meant for building big retirement savings. If you’re looking for one robo-advisor that will cover all of your savings goals, Acorns likely is not the best choice. It is best used in conjunction with another company, specifically one that offers retirement accounts. Acorns lacks some of the tools and features that other robo-advisors have. For example, it does not offer tax-loss harvesting. Depending on how much you invest, there could be big implications for your taxes. Other advisors help you out in this area with tax-loss harvesting, which will decrease the amount you owe in taxes at the end of the year. While many people with an Acorns account don’t have high volumes of money, the taxes could still add up.

Robo-advisors like Acorns can simplify the saving process, but some people prefer being able to ask questions face-to-face. This is particularly useful if your financial situation is a bit more complicated. For example, you may have have multiple savings goals for both the short-term and the long-term. If you have children, you may want to invest for retirement slightly differently in order to maximize the tax benefits. No matter your personal situation, talking with a financial advisor who is a real person can help you to create a more comprehensive plan than  robo-advisor can. It will also allow you to combine your retirement planning with your other financial goals and tax considerations so that you have one financial plan to cover your entire life.

There's monthly fee of $1 on accounts with less than $5,000. Just $1 sounds great, right? Well it can actually work out to a high percentage of your assets if you don’t have a lot of money in your account. 

Imagine that you have $500 in your account. A $1 fee would be equal to a fee of 0.2%. That’s 0.2% monthly so if you had $500 in your account for an entire year, you would end up paying a total fee of 2.4% over the year. That’s a high rate compared to other robo-advisors and Acorns is designed such that many users will have a low amount of money in their accounts for many months or even years.

For some people, a “catch” is that the company will have data on every purchase that you make with your cards. You could choose not to link any cards to your account and add money to your account only by making deposits, but then you wouldn’t be taking advantage of what makes the service unique.

Competition: How Acorns Stacks Up?

This robo-advisor is designed for millennial investors and particularly for college students with little or no regular income. Unlike many other robo-advisors, this one isn’t designed to be the single company that you use for all of your investing. For example, Acorns doesn’t offer any retirement accounts. This means you would have to invest with Acorns and another company to cover all your investment bases. Some people may not mind investing two companies, but it detracts from the ease that most robo-advisors are trying to bring to investing.

Stash is one company that operates in a similar market. It is tailored to people new to investing and it includes a lot of informational materials about saving money and investing. Stash isn’t any cheaper and it also isn’t a robo-advisor. It’s a way for you to help you to learn about investing if you don’t know how to start.

One of the biggest differences between Acorns and other robo-advisors is that Acorns only offers one kind of account: individual taxable accounts. This is OK if you just want to start making money from investments. However, many people invest in order to build retirement savings and it’s best to start saving for retirement as young as possible. Acorns doesn’t offer any retirement accounts like an IRA or 401(k). You would need to transfer your investment into a retirement account somewhere else. Most robo-advisors, including Wealthfront, Betterment and Personal Capital, offer various retirement accounts.

Looking at costs, most robo-advisors have a minimum balance requirement of at least $500. Acorns requires only $5 to start investing. This makes it an affordable option if money is tight but some robo-advisors also have low minimums or no minimum at all. Betterment, which is one of the largest and most well-known robo-advisors, has no minimum.

As for management fees, people with less than $5,000 in their accounts pay a fee of $1 per month. This almost always works out to more than 0.25% annually and could equal a high percentage if your balance is low. The management fee if you have at least $5,000 is 0.25%. This is a competitive rate. Wealthfront charges a flat-rate fee of 0.25%. The catch is that Wealthfront requires at least $500 for you start investing.

A serious investor will find that Acorns doesn’t offer all the tools and features that many of its competitors do. For example, Wealthfront and Betterment both offer tax-loss harvesting, which can help to save you money on taxes by offsetting your investment gains with investment losses. Wealthfront also offers direct indexing, which is a tool that could further lower your tax bill. Wealthfront’s direct indexing is only available for accounts with at least $100,000 but it is a very useful tool if you plan to invest that much money. Other robo-advisors also offer more personalized portfolios with more asset classes.

Acorns is completely internet-based and investors who feel more comfortable talking with human financial advisors might prefer another company. Betterment has a plan that allows you to talk with a financial expert over the phone. This plan requires a minimum balance of $100,000.

Robo-Advisor Management Fee  Minimum Balance  Best For
$1 for balances up to $5,000; 0.25% for balances above $5,000 $0
  • College students with little or no regular income
 
  0.25%   $500
  • Investors with smaller sums to invest
  • Investors who don’t need a human advisor
 
  0.25% - 0.40%  $0 
  • First-time investors with low savings balances
  • Goal-based investors
 

Bottom Line: Should You Use Acorns?

Acorns is designed for a specific customer: a millennial who has a difficult time saving money or doesn’t know a lot about investing. College students with little or no income will particularly benefit. If you fall into this category, you should consider an account. The company’s roundup system probably won’t earn you a ton of money but it offers a good place to start. And because it automates everything, you don’t have to worry about transferring money. On the flip side, the company doesn’t offer many investing tools, like tax-loss harvesting, and it doesn’t offer any retirement accounts. This means you will eventually need to get an account with another company to help you save for retirement or just to do more serious investing.

Tips for Finding an Advisor

  • Acorns does not provide many features for investors who have a more complex financial situation. If you have multiple types of investments, you may want to talk to a financial advisor. Financial advisors are professionals who can help you to figure out everything from planning your investments to navigating tax season.
  • For many people, the biggest drawback with Acorns is that it doesn’t offer a retirement account. Planning for retirement is not only important, but you can really help yourself by starting early. Even if you can only put away a little bit of money when you’re young, that money will grow significantly thanks to compounding interest. This free retirement calculator will help you understand how small contributions now can mean big savings by the time you retire.
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