Though not new by technology standards, Digit is still fairly unique in the realm of personal financial tools. Described by many as a “passive savings” tool, this app is the non-investor answer to the current trend of automating personal finances.
Digit is a micro-savings app. Think of it as an electronic piggy bank where you take small increments and deposit them into a savings account. This is similar to what Acorns does with its “round up” approach, but digit uses a spending algorithm to determine deposit amounts.
The Digit app also gives the ability to save for and pay off debt. You can connect credit cards and have the money withdrawn automatically to gradually get rid of high interest credit card balances. You can even set up a “rainy day” fund which can double as overdraft protection.
Retirement savings (IRAs) are also available in Digit. It appears to be a fairly new feature because there’s very little chatter about it online, but my research shows it to be a solid investment option. I’ll cover more on that below.
Founded in 2012 by Ethan Bloch, a former product manager at Intuit, Digit has passed the test of time for a personal finance app. The company has raised $63.8 million over four funding rounds since then and currently employs over two hundred people.
Who is Digit Designed For?
Digit is targeted to millennials. According to a report released by the Federal Reserve in 2013, roughly 60% of millennials, aged eighteen to forty, have saved little or nothing towards their retirement. Ethan Bloch was twenty-nine years old when he developed the app.
This app is also a decent option for others who have difficulty saving, regardless of age. The increments deposited are small enough to be almost unnoticeable and balances add up over time. This works for those who won’t spend what isn’t right in front of them.
For those with outstanding credit card balances, Digit can be a tool to get those paid down and stabilize spending, but only if it’s coupled with the discipline to stop using those cards. If that happens, automated withdrawals from a checking account will cover the monthly bills.
Don’t look at Digit savings as a long-term “investment” account. The funds deposited into their accounts earn no interest for the depositor. They do, however, offer a 0.5% “savings bonus” each month, which is higher than the national average interest rate on savings.
Setting Up and Funding the Account
Setting up for the first time is simple, easy to understand, and quick. Digit uses Plaid as a data aggregator and the data connectivity is seamless. My credit union account connected in less than a minute and balance data was populated inside the app immediately.
There are a series of security protocols built in that some may find bothersome, but they are no different from what everyone else is doing. I was asked to do code confirmations that were sent to me via text message. This two-step authentication can also be done by email.
One of the clever innovations that impressed me during this process was the messaging “bot” that Digit uses to communicate intent to the user. The first message, originating from a 628 area code (San Francisco) started with the words, “Hi, this is Digit.”
My new friend the Digit-bot tells me they’ll send savings and checking balance updates from the same number and to make sure I log that number in my contacts. It does not state what the frequency of those updates will be, so I’m assuming they’ll be daily.
I connected Digit through my MacBook and then added the app to my iPhone. I used the “suggested” password on the computer, but instantly wished I hadn’t when I connected the mobile app. For simplicity, I’d recommend choosing your own password.
The mobile app itself is intuitive and well-laid out. The color scheme clearly separates each function and the app is full function, so you don’t have to go to a desktop version to make changes. That includes account updates, resetting goals, and cancellations.
Setting Goals and Safe Savings Level
This part was simple, but a little scary. By setting goals, you are essentially telling Digit how much you need to save. That’s great. What isn’t so good is that Digit never really clarifies what the amounts are that they’ll pull from your account. Here are the categories for goals:
- Rainy Day Fund
- Credit Cards
- Student Loans
- Travel Near or Far
- Save for a Cause
- Splurge on Gifts
- Create Your Own Goal
Like most Americans, I have credit card debt, so I tried out the goal to pay those off. The app easily connected to my credit card company and informed me that an automated payment would come out on the 29th. How much? They didn’t say.
After doing a little research, I learned how to keep a cap on Digit withdrawals. Before setting up a goal, utilize the Safe Saving Level feature to protect your deposit account. This will create a threshold balance on your deposit account under which Digit is not authorized to withdraw.
Setting goals and saving for them seems like a useful exercise, but the degree of uncertainty makes it a leap of faith to engage. I’d recommend using Digit for a few months before setting goals so you can get a feel for how much you’re actually putting into the app.
Digit Retirement Option
In addition to simple savings (with no interest), Digit now offers a retirement option. I signed up for this and now have a Roth IRA to deposit my savings money into each month. For more serious investors, this makes Digit a better option with an opportunity to earn.
The investment portfolios for their IRAs are determined by the age and income levels of the user. Mine is heavy on US and international stock, with a smattering of bond funds mixed in. There are other options available when you set up your retirement account.
One aspect of the retirement plans on Digit that seems to set them apart from other apps is that they are not composed strictly of ETFs. Investing in individual stocks usually produces a higher upside, though it can also mean more significant losses.
For those who already have a 401(k) or pension fund, opening an IRA on top of that isn’t a bad idea, particularly when it’s being funded by what is essentially disposable income. The investment funds Digit is using are managed by Vanguard, so it’s a fairly safe investment.
It’s important for you to know that the Internal Revenue Service sets contribution levels each year to limit how much you can invest annually into an IRA or Roth IRA. In 2020, that limit is $6000, but you can increase it to $7000 if you’re over age fifty.
Cost and Potential Fees
Digit costs $5 per month, $2.99 per month for legacy customers who signed up before July 23, 2019. They offer a free thirty-day trial and cancellation is a simple process that you can do on the website or on your mobile app. You don’t need to call or email to cancel.
There are no other stated fees to use Digit, but there is an additional cost. The 0.5% savings bonus is meant to take the place of an interest rate, but it’s only a simple payout, not a compounded rate. That distinction means Digit pays out less than traditional savings accounts.
Another drawback to the savings bonus is that it’s only paid on balances remaining after the close of the month. If you’re paying out money for credit card or retirement goals, you make nothing off your savings principle that month. That’s not a fee, but it does cost you money.
Digit Cost vs Competitors
- Qapital: Offers a basic membership for $3 per month, but that doesn’t include spending analysis and investment tools. For those, you need to pay $6 per month. If you save over $5000 a year, that cost goes up to $12 per month.
- Chime: This online banking app requires no minimum deposit and charges no monthly fee. They offer round-ups on debit card purchases to build savings and provide an ATM card that accesses funds at locations on the MoneyPass and Visa networks.
- Acorns: The basic membership is just $1 per month for an ETF investment account, with an increase to $3 per month if you add checking (with ATM card) and retirement options. Their family plan is $5 and includes “Early” accounts for children.
Pros and Cons
Overall, I’d rate Digit as a great personal finance app, but it’s not without its drawbacks. So far, based on my experience and everything I’ve read about it, the app deserves a thumbs up. I’ve broken down the various reasons for that recommendation below.
Pros, Perks and Features
There are some definite perks to using the Digit app. One of them, the savings bonuses, we’ve already discussed. I’ve included it here in pros because I do believe that it’s a pro for those who wouldn’t normally open up a traditional savings account.
Another perk is the way that Digit handles overdrafts. They offer overdraft protection to prevent your deposit account from going into the negative and overdraft reimbursement up to two times per year if they overdraft your account and you get charged a fee.
Since this is a mobile app, support is twenty-four hours, seven days a week by email. Your access, obviously, is the same. You can check accounts, make changes, or add goals at any time during the day. Balances update in real time, even on weekends and holidays.
I like the potential for deposits to scale up, but that can also be dangerous. I’m listing it here in pros because I believe you can build a significant nest egg using the Digit algorithm. You’ll see it in the “con” section below because there’s potential to over-extend certain users.
Cons and Potential Downside
There are very few cons that I can see with this app after researching it and using it myself.
Acorns and Chime, and their “round-up” features, offer a more controllable way to allocate money into savings. Digit advertises their system as an “unnoticeable” way to channel money into savings, but the monthly allocations can add up quickly. That could be an issue.
The biggest downside that I see is uncertainty. Digit is too vague on projecting deposit amounts and should have a better system for capping them. The “Safe Saving” thresholds are good, but they don’t provide any real protection to the user. Digit could conceivably take too much.
Digit App has a 4.7-star rating on the App Store and 4.6 stars on Google Play. The Better Business Bureau has them listed with a “B” rating, but Digit is not “accredited” with them (which is a paid status), so that could be the reason for the low grade.
There are only twenty-nine reviews on the BBB website. Google Play shows over one million installs. The App Store has compiled over 200,000 reviews. Sample size is important. I’m more inclined to listen to the mobile app reviews than the Better Business Bureau.
Customer service is email or in-app only. That will generate complaints from people who prefer phone support. It’s fairly common for fintech apps. Digit does not seem to have an inordinate volume of complaints because of it. Most issues that I am reading about involve user error.
All in, I’m seeing a general sense of satisfaction with this app. I plan on using it myself going forward and taking advantage of their retirement option. I already have something similar with Acorns, but I honestly believe this one will add up faster.