With close to 85% of purchases made with credit or debit cards, many people have forgotten the satisfying clinking sound of tossing a penny, nickel, dime or quarter into a glass jar of spare change. But all that is starting to change.

Clever new savings ideas

In today’s world of smartphones, several apps have digitized yesterday’s jar of coins by sweeping electronic spare change into a digital jar to increase savings balances or pay down debt. For example, if you make a purchase for $1.89, the app rounds up your purchase to $2.00 and transfers the extra 11 cents into the app’s account. Here are three of the more popular apps and how they work.

Popular digital savings players

• Acorns. Acorns was the first app to jump on the idea of rounding up your purchase and stashing away the extra money. The app connects directly to your debit or credit card and sweeps the difference between the transaction amount and the next dollar amount into an investment account. Since its start, Acorns has added more products like checking accounts, debit cards, budgeting tools and IRA options. Fees range from $1 to $3 per month depending on the types of products you use. That may not sound like much, but it should if you calculate the effective cost for these small transaction levels. For instance, if the application collects $50 in a month and the Acorns fee is $2, you end up paying a fee of 4% per month for the digital savings account.

• Digit. Digit takes a different approach. Their algorithm tracks your spending and upcoming bills, then compares them against your checking account balance to figure out how much you can save. The app then automatically transfers that amount from your checking account to your savings account. You can establish three different savings goals with Digit. The app will then distribute the amount it sweeps from your checking account into each of the three savings buckets depending on how you prioritize them. Worried about overdrafts? You can set a minimum checking balance, so transfers won’t be made if you don’t have enough in the account. If that fails, Digit will reimburse you for the overdraft fees. At $5 per month, it’s one of the more expensive micro-savings apps. If interested, they offer a 30-day trial to test drive their digital savings tool.

• Qoins. Looking to pay down debt? Qoins might be the app for you. Like Acorns, Qoins takes the difference between each transaction and the next dollar amount, then aggregates the amount over the course of a month. But instead of investing this amount, Qoins makes a monthly payment to pay down the principal of a student loan, credit card or other debt. Qoins charges a fee of $2 for every monthly payment, so if you have many accounts, the monthly fee can add up quickly. In most cases, the interest expense saved on paying down debt early is more than the interest you can currently earn in a savings account.

The area of digital money saving applications is rapidly evolving. Before using any of these apps, it is important to understand their costs and risks involved, compared to other ways of saving money. One of my primary objectives is to help you achieve your financial goals through a holistic approach that is also tax efficient in my wealth management practice.

For more information visit www.fredtfoxiii.com.

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