Acorns is a company you’ve undoubtedly heard of (else you wouldn’t be here reading this review). The company invests fairly heavily into advertising, so it’s difficult to make it through an hour of YouTube without seeing an Acorns commercial.
You’re also likely aware that Acorns rose to popularity through implementation of a very interesting, and dare I say genius, concept – investing spare change. So, for every purchase you make at the grocery store, Acorns rounds up to the nearest dollar and invests that money in the stock market.
On the surface, it’s a genius idea. But how does it work? Is it a legit service? Can you really invest a meaningful amount by collecting spare change?
In this article, I’ll review what Acorns has to offer, and help you determine if it’s worth considering.
- What is Acorns?
- How do Round Ups work?
- Where does Acorns invest the money?
- What else does Acorns offer?
- How much does Acorns cost?
- Who should use Acorns?
- Bottom line
DISCLAIMER: This article contains affiliate links for which I earn a small commission if you purchase a product or service after clicking the link. Please know that I only promote products or services in which I have personal experience and/or believe could add value to others.
What is Acorns?
Acorns is a financial service app founded on the premise of investing spare change.
If you’re 30 years old or older, you probably remember when purchases were made with cash. Cash purchases rarely totaled to an even dollar, so the purchaser almost always received change. Which, inevitably, found its way into the center console of the car or an old jar at home never to be seen again.
If you’re like me, there’s been a few times in your life when you’ve taken a jar of coins to Coinstar to trade it in for dollar bills. More than once, I can remember being surprised by how much money was in that jar. What looked like a worthless jar of pennies easily amounted to $50 or more.
Not doing something with that spare change was literally throwing money away.
Acorns takes that simple concept of gathering spare change (which they refer to as Round Ups) from uneven dollar purchases, and investing it in the stock market. Except nowadays, it’s not physical coins being collected, but digital quarters, dimes, nickels, and pennies.
Instead of receiving “change” on a $10.59 credit card purchase at Chipotle, Acorns rounds the purchase to $11.00, thereby saving $0.41 to be invested in the market. A couple of quarters might not seem like much, but how many purchases do you make like that in a month?
In 2021, the average Acorns user rounded up over $40 per month from these types of purchases. That equates to around $500 per year. Not bad, and certainly a better alternative than doing nothing with it. Or letting it sit in a savings account earning less than 0.05% interest.
How do Round Ups work?
Acorns’ Round Up technology is simple. Here are the steps to get started:
- Open an Acorns account
- Link your checking account
- Connect your debit and credit cards
- Enable the Round Ups feature from your Acorns account
That’s it.
If you don’t have an Acorns checking account (more on this later), Round Up savings are transferred from your existing checking account each time the total reaches $5. Acorns won’t deduct $5 from your credit card account, for example. Instead, Acorns tracks Round Ups from the credit card account, but makes the transfer from the linked checking account.
Each time your total Round Ups reaches $5, funds are transferred to your Acorns Invest account (more on this later too) for investment in the market.
If you have an Acorns checking account, Round Ups are invested in real-time. Meaning, Acorns doesn’t wait for the total to reach $5 before investing the funds. It invests the funds as soon as the purchase clears. This gets your money invested earlier, which bodes well for long-term investing.
Once Round Ups is enabled, investing spare change is automatic. The user doesn’t need to worry about saving, transferring, or investing money in the stock market.
Where does Acorns invest the money?
We’ve established how Acorns uses Round Ups to invest spare change. But where does Acorns invest the money? The answer: exchange-traded funds (ETFs).
ETFs are a basket of investments (stocks, bonds, crypto, etc…) having a specific purpose or goal. There’s an ETF for just about anything you can think of. For example, there are ETFs that aim to:
- Mimic the return of the S&P 500 & Nasdaq 100 indices
- Invest in companies engaged in artificial intelligence
- Short the market in a bearish bet that it’ll go down
- Invest in companies engaged in lithium mining for electric vehicle (EV) batteries
Generally, ETFs are thought to be a safer, more diversified investment than individual stocks. This is because ETFs are less concentrated.
For example, investing $1,000 into 500 companies via a S&P 500 ETF, is less risky than investing the same $1,000 into 10 companies in the S&P 500…theoretically.
Acorns Portfolio Options
Before Acorns invests your funds, the app asks users a series of questions to determine an appropriate Portfolio type. The questions touch on the user’s age, investment objectives, and risk tolerance, to name a few.
Based on the response, Acorns suggests 1 of 5 Portfolio types:
- Conservative
- Moderately Conservative
- Moderate
- Moderately Aggressive
- Aggressive
The individual ETFs Acorns buys for the user is based on Portfolio type. For example, an Aggressive portfolio may invest 50% of funds into a Small or Mid Cap ETF. Whereas a Conservative portfolio may only invest 10% in those same ETFs.
Acorns Core ETF Options
While each Portfolio may not invest in all available ETFs, Acorns lists these as core options:
| Exchange-Traded Fund | Ticker |
| iShares Core S&P Mid-Cap ETF | IJH |
| iShares Core S&P Small-Cap ETF | IJR |
| iShares Core MSCI Total International Stock ETF | IXUS |
| Vanguard 500 Index Fund ETF Shares | VOO |
| iShares Core U.S. Aggregate Bond ETF | AGG |
| iShares Core 1-5 Year USD Bond ETF | ISTB |
| SPDR Bloomberg Barclays 1-3 Month T-Bill ETF | BIL |
| Goldman Sachs Access Treasury 0-1 Year ETF | GBIL |
| iShares Ultra Short-Term Bond ETF | ICSH |
| JPMorgan Ultra-Short Income ETF | JPST |
| iShares Short Treasury Bond ETF | SHV |
Each Acorns user will own some mixture of these ETFs, with the mixture being determined by the Portfolio type.
For interested investors, Acorns also offers ESG (environmental, social, and governance) centered ETFs, a list of which can be found here.
What else does Acorns offer?
While Acorns was founded on the concept of investing spare change, the company has evolved to offer more products and services. Acorns has grown into a financial services company offering investing, banking, and retirement savings.
Acorns’ signature products include:
- Acorns Invest
- Acorns Later
- Acorns Early
- Acorns Banking
Acorns Invest
Acorns Invest is the company’s signature product offering the Round Ups technology described above. It’s important to note, the Acorns Invest account is a taxable account. Meaning, users are subject to taxes on capital gains (long and short term) when an investment is sold for a profit.
This is no different than if you were to open a new brokerage account with Fidelity or TD Ameritrade (my review here). Brokerage accounts such as these do not offer the same tax benefits as does a retirement account, for example.
To gain the tax benefit of retirement savings, you’ll need to open an Acorns Later account.
Acorns Later
Acorns Later is the company’s retirement savings account. It allows users to open Individual Retirement Accounts (IRAs). Acorns offers three options:
- Roth IRA: contributions are made using after-tax dollars; earnings grow tax free
- Traditional IRA: taxes are paid when funds are withdrawn
- SEP IRA: Simplified Employee Pension (SEP) IRA; for small business owners and the self-employed
Acorns’ Round Up technology isn’t available within Acorns Later.
Instead, Acorns Later resembles a traditional retirement account where the account holder deposits funds on a recurring or lump sum basis. Similar to Acorns Invest, Acorns Later offers age-based portfolios, and invests funds in the same ETFs listed above.
Acorns Early
Acorns Early is Acorns’ offering for custodial accounts for children (or children in your life). Specifically, when you open an Acorns Early account, you’re opening a Uniform Transfer to Minors (UTMA)/Uniform Gift to Minors (UGMA) account.
These accounts are more flexible, and differ from a 529 plan (college savings) which can only be used for educational purposes. Whereas funds from the UTMA/UGMA can be used in various ways that directly benefit the child. This may include the purchase of a new car or extracurricular activities.
Another good thing about Acorns Early is that the account can easily be converted to Acorns Invest when the child reaches 18 years old.
Similar to Acorns Later, Round Ups technology isn’t available within Acorns Early. And users deposit funds on a recurring or lump sum basis. Where are the funds invested? You guessed it, in the same ETFs listed above for Acorns Invest and Acorns Later.
Acorns Banking
Finally, Acorns offers online banking via their checking account and mobile app. Acorns banking operates in much the same way as a typical checking account, except with a few added features:
- Real-time Round Ups for transfer and investment in Acorns Invest (i.e. you don’t have to wait until the total reaches $5)
- Earn bonus investments when you use your Acorns debit card to shop brands who’ve partnered with Acorns (i.e. companies “donate” funds for investment)
- Automatically invest a portion of your paycheck in Acorns Invest, Later, or Early
Another bonus is that it keeps your banking and investing in one spot, which is easily managed via Acorns’ mobile app.
How much does Acorns cost?
It’s helpful to think about Acorns’ pricing as two options, the Personal Plan and Family Plan, though you won’t find it listed as such on their website.
- Personal Plan: costs $3 per month and includes their flagship product – Acorns Invest, as well as Acorns Later and Acorns Banking.
- Family Plan: costs $5 per month and includes everything in the Personal Plan, plus Acorns Early which is the custodial account for children.
Up to $5 per month doesn’t seem expensive, but it really depends on how much money is in the account. And whether you’re actually successful in saving and investing with Acorns.
For instance, you can open a checking account for free at any bank in America. So why pay $5 per month to open one at Acorns? Whether it’s worth it depends on the individual.
Who should use Acorns?
You now have a good idea of who Acorns is and all they have to offer. But who might Acorns benefit the most?
In my opinion, Acorns is best suited for individuals who:
- Have a hard time saving money
- Want to invest in the stock market, but aren’t interested in learning what to buy, how to buy, how to diversity, etc…
- Want to open a custodial account for their kids or other kids in their lives
- Teens with a job who are opening up their very first checking and/or investing account
I’d be lying if I said you couldn’t do for yourself all that Acorns has to offer, without paying $3 to $5 per month.
You can easily open a taxable brokerage account, IRA, and 529 plan. You can easily set up recurring transfers from your checking account to your investment account. You can easily (fairly) research ETFs and determine which is best for you.
But I also recognize that not everyone is interested in a single one of these things, let alone all 5 or 6. Personally, I’m not an Acorns user because I’m interested in personal finance and investing. But others would rather drink poison than learn about ETFs and asset allocation.
So, if you’re one of those who vomits in your mouth a little when someone talks about budgeting, retirement savings, and investing, but also recognize these things are important, Acorns is an option worth considering.
Acorns allows you to do all the things you know you should, automatically, without requiring a PhD in Personal Finance.
Bottom line
Founded on the idea of investing spare change, Acorns has evolved into a full-blown financial services company, allowing users to bank, save, and invest.
If you’re an avid stock market enthusiast, meticulous saver, or financial guru, Acorns probably isn’t for you. But if you struggle to save and invest, or simply have no interest in learning the ins-and-outs of the stock market and investing, Acorns may be a good solution.
Acorns gets you in the game. Because when it comes to investing, time in the market is more important than what you own. So stop stressing about what you’re going to buy, and simply invest.
Go grab that spare change from the center console, and put it to work with Acorns.
