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Stealth savings with Digit.

th-1Today I wrapped and deposited $16.50 worth of quarters, dimes and pennies from my piggy bank. Dropping all my change in there is just one of my savings challenges, i.e., a way to set a few dollars aside without too much pain.

Lately I’ve been enjoying another form of stealth savings: Digit, a personal finance app that automates withdrawals.

You link your account — some 2,500 banks and credit unions are currently set up for this — and the software figures out how your money comes in and goes out. It also figures out how much you can afford to spare, and every few days it sends money to an online bank account (Digit’s partners are Wells Fargo and BofI Federal Bank).

What interests me is the amount Digit has decided I can afford. Whereas my blogging colleague J. Money of Budgets Are Sexy reported total withdrawals of just under $200 the first month, my dealings with Digit started started small.

Very small. That first week Digit siphoned off just $7.46 – for a good reason.

At that point I hadn’t been paid in more than two months. But after I finally deposited a paycheck, after about four months with no salary, Digit stepped up its game. The app is now automating an average of $6 per transfer, a total of just over $100 since early February. That’s only half as much as J. Money has, but I’m okay with that.

I like the way the program works because it’s so invisible. Although I see the withdrawals every time I sign on to my credit union account, once I’ve signed back off I forget that the Digit savings exist. The same is true of my online account at Capital One 360: I get the monthly statement e-mails but that money is off my radar.

I’m okay with that, too. If I thought about it too much, I might decide to spend some of it.

 

Can you afford (not) to save?

To be clear: If anyone joins Digit using the above referral link, I’ll earn a small fee. But that’s not why I’m recommending it. I think Digit is an effective tool for those who are very busy and/or under a lot of pressure and thus put off savings week to week, month to month, year to year.

An article in American Banker noted that “the fewer steps it takes to save money, the more likely people are to do it.” The publication quoted a banking professional who suggested that the Digit app could make “a lifelong savings habit as easy as finding (loose change) in sofa cushions.”

Some people prefer to automate periodic savings into either an online or brick-and-mortar bank or credit union. I’ve been doing that for years. Yet even in this case Digit could enhance your financial well-being by discouraging overspending.

For example, suppose you automate $100 a month into savings and pay your bills with what’s left. Stop me if the following thought process sounds familiar:

  • It’s the day before payday.
  • Your checking-account balance is above $0.
  • You congratulate yourself for making it through another pay period with room to spare.
  • Then you treat yourself: dinner out, a movie, a sporting event, an article of clothing you’ve been ogling. After all, you can afford it, right?

Technically, yes. But wouldn’t some of that money be better used by not being used?

Right now I’m on track save $700+ in a year’s time, without any real pain. Suppose you could save even half of that, or twice as much. Those dollars could pad the emergency fund, become a “pay cash for our next car” account, get transferred to a Roth IRA or help you meet some other short- or long-term goal.

Future You will be awfully glad that Current You decided to forgo the occasional hoopsfest or Thai takeout.

 

Questions that must be asked

Here’s the biggest Digit downside: You earn no interest whatsoever.

Keeping any gains generated by the deposits is how Digit’s creators make their money. On the other hand, interest rates are currently pretty pathetic for the average saver – if, in fact, he saves at all.

If you’re like the person I mentioned above, Digit will grab some of those day-before-payday bucks before you have a chance to spend them. You learn to live on what’s left and the dollars that would have gone toward fleeting pleasures are tucked away.

Should you need that money, it takes one business day to have it transferred back into checking. That’s quick enough for emergencies, but slow enough to allow the “want it! want it!” impulse to subside somewhat.

(Once I interviewed a woman who kept much of her money in an online account for that very reason. By the time the money hit her checking account the buying lust had generally subsided and she’d invariably transfer the money back into the online bank.)

A few more issues and answers:

  • Your money is held in a custodial account, so Digit has no legal rights to it.
  • Since the funds belong to the customers, they cannot be used as collateral or given to creditors if bankruptcy occurred – only given back to Digit users.
  • The money is FDIC-insured (although other funds that you have with Wells Fargo or BofI Federal Bank should be considered in addition to your Digit savings).
  • If Digit were to cause your account to overdraft, the company pays the fee.
  • Communicating with Digit is done by text rather than e-mail or phone. If you don’t text, this isn’t a program for you. Then again, if you don’t text you might not be using a lot of apps.

Again: If you decide to join with my referral link, I profit. If you start saving, then you profit. Should you think the Digit app is a match for your situation, please give it a try. Go directly to the Digit website to sign up if the idea of bloggers making affiliate fees makes you feel uneasy.

Just save. Please. If you’re the kind of person who can’t control spending but frets about a paucity of savings, then automating your funds is the way to go. You can do that in a big way by ordering a big monthly sum to be set aside, or in a smaller way by letting Digit hide your money for you.

Or do both. I can already hear Future You cheering.

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5 Comments

  1. Heather

    I started using Digit about 2 months ago. I too have a pretty small balance, but I budget every dollar so I imagine that’s why. It usually takes money at the end of the month. I’ll use the money for paying down extra on debt for now and will use it to boost my savings later, probably for holiday savings or to fund a Roth.

    • Donna Freedman

      Those are all good goals. For obvious reasons I prefer the Roth, but if it can help you do a worry- and additional-debt-free holiday then go for it.

  2. Linda G

    My credit union offers an Easy Saver account. Every debit card transaction is rounded up to the next dollar and the change is added to that account. We’ve saved almost $300 in the last seven months this way.

  3. So glad we had a chance to connect. And thanks so much for spreading the Digit love.

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