If you’ve ever tried to create a savings habit, you know how difficult it is to get started. After opening a separate savings account, you begin to put as much money as possible into it each month.
But then after a few weeks you end up having an emergency come up and need to use the money. Now you’re back to square one. This is where a new service, called Digit, can help.
What Is Digit?
Hello Digit is a brand new micro-savings account designed to help you save small bits of money over time. In the same vein as the Acorns app, you won’t get rich off the money you save with their service, but it does initiate that first step toward creating a savings habit and building wealth.
“Digit fits into the lifestyles of people who grew up on the web and look to technology, like Uber, Instacart and Venmo. They trust tech and use it daily to simplify their lives,” says Bloch. In other words, if you’re looking for a tech-assisted automated process to start saving, Digit allows you to do this with zero effort on your part.
You can use the money you save in your Digit account for a summer vacation or small emergencies like car repairs. Because of Digit’s micro-savings format, it’s not likely it will propel you towards a car or a down payment on a new home.
How Does Digit Work?
Digit evaluates your spending habits and transfers money out of your linked bank account into your Digit account. In my experience, the average transfer each time is around $9. Sometimes it’s as much as $14 or as little as $2, depending on what the balance is in my personal bank account. Digit Savings are FDIC insured up to $250,000.
Here’s a bit about how the micro-savings service works and how to get started:
“Digit studies day-to-day spending and income history looking for daily savings opportunities consumers won’t notice. Every 2 or 3 days, Digit transfers some money from a checking account to a secure Digit account. The four main signals that influence Digit’s savings include checking balance, upcoming income, upcoming bills and recent spending patterns. From these variables, Digit derives a nonessential amount you won’t notice based on how you’ve been spending. There is never a transfer of more than you can afford, and there is a no-overdraft guarantee.”
Digit Savings Features
|Mobile App||Yes — SMS, Android and Apple iOS|
|Web Site Access||Yes — Limited Functionality|
You communicate with Digit’s service primarily via text (SMS) messages.
Digit recently created apps for both Android and Apple iOS (New), which allow you to bypass paying for SMS text messages, meaning it uses only your internet bandwidth. Plus it is more secure than SMS, since all communication is SSL-encrypted. Otherwise, the app and texting function exactly the same.
The text messages allow you to perform all your regular banking transactions, such as viewing your balance, initiating withdrawals, saving extra money or even viewing upcoming bills, all without using a computer. For example, if you want to pause your savings, simply text “PAUSE” to Digit’s number.
In case you’re wondering, yes, standard text messaging rates do apply when interacting with Digit’s SMS. But you can limit the number of texts you receive. “Digit users do have the option of limiting the amount of texts received. For example, I choose to have my current bank account balance sent to me once a week rather than once a day,” explains Bloch.
The service is completely free; there are no hidden costs anywhere. Seriously! I’ve been trying out this service for just over one year, and in that time I’ve saved over $956.
Any dollar you save with Digit and leave in your account for three months will earn you a 0.05% return of your cash. Each week, Digit will analyze your account and add up any savings you’ve not touched for three months, and then reward you with 5 cents for every $100.
Text Digit “Plus” to see when your next reward will be or check out your dashboard to track your earned rewards.
How Does Digit Make Money?
Digit does not have plans to charge a fee for their service, so I expect it will remain free in the future. As I said, it’s not a service that’s going to make you rich, but it does help you stash away the extra money you won’t even miss.
All businesses have to make money in order to survive, so if Digit doesn’t charge for their service, how do they make money? The way Digit makes money is they earn interest on the money you save, and pay out only a small portion (0.05%) of interest to you.
I don’t mind this because I’m not trying to make money with Digit; I’m trying to save money. And that’s the original reason it was created. Yes, I am probably missing out on a larger sum of interest I could earn over the next 20 years, but that’s not what I’m focusing on.
Digit isn’t set up for large savings goals. Since the withdrawals are based on the money in your checking account, unless you have an outstandingly large bank balance, your savings will be minimal. Digit was created to help anyone save money, no matter your previous savings history or bank balance.
What Would Make Digit Better?
With its simplistic idea, Digit is focused on helping you save small, affordable bits of money each week. You won’t get rich using Digit.
They’re honing in on the tech-savvy, Millennial marketplace with their innovative text-message savings feature and habit-forming method of getting you to save money on a regular basis.
One thing that would make Digit better is having a more concrete formula for how they calculate your savings transfers. Their current method is much too vague and actually turned me off to their service in the beginning. I tested it out only because a trusted friend used and recommended their service. If nothing else, they do offer a no-overdraft guarantee on your checking account.
- Automatic Savings — Digit's service makes saving simple and as easy as sending a text message. In fact, you don't have to make any transfers if you don't want to.
- Simplified Goals — With one savings account you can simply your goal and work toward one small short-term savings goal. No distractions and it's easy to stay on track.
- Save Without Thinking — Once you set up Digit it's easy to set-and-forget your savings with them. Next thing you know, you have some vacation or fun money saved up.
- $5 Referral per Signup — Get $5 for each friend you refer to Digit's service
- Cannot Perform Transactions via the Web Site — You cannot make deposits or withdraw money via the web site.
- Unexplained Savings Algorithm — After questioning Digit's team and CEO directly, I still have no idea how they determine how much money to transfer into your account every few days. If you don't want to give up the control of your finances, you may not like their vague algorithm.
- Small Savings Interest — The way Digit makes money is off of the interest your savings account makes, while paying you only a very small portion based on the money in your account.
- Not for Long-Term Savings — Digit won't make you rich and it's more difficult to save money towards a larger goal, like buying a home or retirement.
I am now a believer in their service and recommend you check it out as well. Like Acorns, I’m viewing it as a diversified stream of my financial portfolio. Along with using Betterment for my retirement needs, Digit adds a bit of fun to the mix for short-term savings goals.