I have always been a fan of automated savings, but sometimes getting things setup can be a challenge. How much should I save? How often should transfers take place? Do I enter a fixed dollar amount or a percentage? How do I know I will not accidentally overdraft my accounts?
Thanks to a new service called Digit, I don’t have to worry about any of those questions anymore and my savings are automatic and carefree. And, with Digit, saving is actually kind of fun.
What is Digit?
Digit is a new startup from San Francisco with a belief that bad habits create an unnecessary hardship when dealing with your personal finances. To solve that problem, they found a way to take our bad habits out of the equation.
Digit is a savings tool that automatically takes care of your savings for you with small transfers from your checking account into a Digit savings account every few days. You don’t do anything, it just saves money away for you.
How it Works
When you sign up for Digit, you connect the service to your checking account. Digit monitors your activity and sends you occasional updates via text message to let you know if a big deposit came in or a big expense cleared your account.
Every few days, Digit makes a withdrawal from you checking and deposits the cash into a Digit savings account. Digit calculates the amount based on your spending habits and your account balance. The company has a no overdraft guarantee and they will pay you back for an overdraft fee if they cause a problem.
In the month that I’ve been using the site, I have had withdrawals ranging from as small as $2.58 and as large as $24.12. Most withdrawals range between $5 and $50, and they are designed to avoid causing any hardship or problems with your regular spending habits.
You control everything via text message. If you want to see your Digit savings balance, checking account balance, recent transactions, or upcoming bills, you just send a simple text message command to Digit and they will respond with the information you requested.
You can also pause your savings or make adjustments by texting “pause” or “settings” to the Digit number. If you want to force an extra savings transfer, you just text “save” to Digit. If you want to withdraw back into your checking, send the withdraw command and the funds show back up in your savings the next day. It couldn’t be simpler.
How to Sign Up
I use Digit myself and happily suggest it to anyone as a great way to up your savings. The only downside I have found is that you do not earn interest on your Digit savings, but it is completely free and interest rates are really low anyway, so it comes out in the wash.
To sign up, just head to Digit and link your checking account. The entire process took me less than two minutes. And, in about a month I have saved $147.80. It was painless and I have that money stashed away for an IRA contribution, a vacation, an emergency, or a rainy day.
So what about APY? Is this FDIC insured?
The accounts are custodial accounts held in the end user name at major banks and are FDIC insured. There is no interest paid on the accounts, but they are also fee free. The interest is how the company is making money to pay for the product. The owners have stated that they would like to offer an interest share at some point in the future.
So Digit doesn’t seem to give us any penny or interest on my automated savings. I don’t get it or understand why you are motivated to use such a service. I’d rather do automated savings myself depending on my usage.
I am a fan of this service because of how easy it is. I don’t think it would be the best savings account for the long-term for everyone, but with a negative savings rate among young people, this is a great tool that could help turn that trend around.
In the long run, this could be a good way to build up a substantial savings without doing any extra work. If you are concerned about losing out on interest, which is only about .06% on average, you could wait for your balance to grow and every time you hit a milestone, like $500 or $1,000, transfer the balance to a savings account.
Neat company Eric! I am going to tell my brother about this – it might be a big help to him. Thanks!
My plan is every time I hit $1,000, I’ll transfer it to my stock account and use it to invest. There’s so much you can do with it!