How does Acorns work?

Short answer: Acorns is a mobile-first investment app that automatically withdraws small sums of money from your bank account to invest in the stock market via ETFs. For their services, you’ll pay $1/month or 0.25% if you have more than $5,000. Your first month is free.

Long answer: Once you’ve downloaded the app, you’ll be asked about your risk preferences and personal information. Acorns needs your social security number, and there’s no getting around it. All investment apps require you to register with a social security number. But Acorns is legit and has over a million users, so don’t worry.

After your initial investment (as low as $5), you’ll link a debit or credit card (you can link as many cards as you want) to your Acorns account, and they’ll take the spare change from every transaction with Round-Ups.

What are Round-Ups? Let’s say you buy a coffee for $2.73. Acorns will see your coffee purchase and round-up to $3 by marking $0.27 in your Acorns account. Once you accumulate $5 in Round-Ups, Acorns withdraws $5 from your bank account.

That may seem insignificant, but after a couple of months, I’d accumulated $40 in my Acorns account.

You can turn Round-Ups off anytime, and you can withdraw the money from Acorns any time as well.

Once you have money in your Acorns account, Acorns will recommend one of five ETFs based on your income, age and risk tolerance. Then Acorns automatically invests that money into the ETF you’ve picked.

What’s an ETF? ETF is an acronym for an exchange-traded fund, and it’s a type of mutual fund. They’re a selection of several individual stocks that are traded as a group. Most mimic popular index funds.

When the U.S. stock market does well, your ETF does well. Your returns will vary because there are different degrees of risk you can select. Keep in mind the stock market has gone up an average of 7% a year when adjusted for inflation.

Five different Acorns ETFs:

  1. Conservative: 12% Vanguard S&P, 2% Vanguard Small Cap, 2% Vanguard REIT, 40% iShares 1-3 Year Treasury Bond, 40% iShares Inv. Grade Corp. Bond, 4% Vanguard FTSE
  2. Moderately Conservative: 24% Vanguard S&P, 4% Vanguard Small Cap, 4% Vanguard REIT, 30% iShares 1-3 Year Treasury Bond, 30% iShares Inv. Grade Corp. Bond, 8% Vanguard FTSE
  3. Moderate: 29% Vanguard S&P, 10% Vanguard Small Cap, 3% Vanguard Emerging Markets, 6% Vanguard REIT, 20% iShares 1-3 Year Treasury Bond, 20% iShares Inv. Grade Corp. Bond, 12% Vanguard FTSE
  4. Moderately Aggressive: 38% Vanguard S&P, 14% Vanguard Small Cap, 4% Vanguard Emerging Markets, 8% Vanguard REIT, 10% iShares 1-3 Year Treasury Bond, 10% iShares Inv. Grade Corp. Bond, 16% Vanguard FTSE
  5. Aggressive: 40% Vanguard S&P, 20% Vanguard Small Cap, 10% Vanguard Emerging Markets, 10% Vanguard REIT, 10% Vanguard FTSE

Setup (A+):

  • It’s intentionally basic with limited options. There are five ETFs (Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive) to pick from. The ETFs aren’t created by Acorns. They’re combinations of already-notable ETFs (Vanguard S&P, Vanguard Small Cap, Vanguard Emerging Markets, Vanguard REIT, Vanguard FTSE, iShares Inv. Grade Corp. Bond, iShares 1-3 Year Treasury Bond). You give Acorns your information and it matches you to the ETF combination that suits your risk profile best. (You can change your level of aggressiveness anytime).
  • Acorns does Round-Ups. It records every purchase you make and rounds up to the nearest dollar. At the end of the week, Acorns takes all that “spare change” from Round-Ups and deposits it into your Acorns account. For example, if you buy something for $1.50, $0.50 will be sent to your Acorns account to make it an even $2. Although it isn’t a significant advantage since you could auto-deposit a fixed amount every week, there’s a cool psychological element to it that makes investing fun. You can link as many credit or debit cards as you want. You can use multipliers on your Round-Ups too. You’ll be surprised how quickly it adds up.
  • The Found Money system is excellent! This is similar to cash-back apps like Rakuten or Honey. In the Acorns app, tap on one of the stores you want to shop at, shop as you normally would, and you’ll get a percentage of your purchase deposited into your Acorns account when you’re done. For example, if you buy a $1,000 MacBook from Apple through Acorns, you’ll be credited $12. It’s free money!
  • Acorns has lots of resources on basic investing and glossary terms. There’s an investment graph that shows you how much money you’ll have at each age depending on how much you invest.

Trading Options (D):

  • There are only five ETFs. It’s not easy to see what individual companies are inside each ETFs through the app, but you can do your research. I think the limit of ETFs is a good thing for beginning investors.

Fees (C+):

  • Acorns is free if you’re in college and under 24 years old, but Acorns is expensive otherwise, with the same fee structure as Stash. You get the first month free, but after that, it’s $1 per month if your account is under $5,000.
  • The fee is 0.25% if your account is over $5,000. Only $12 a year, so what? Let’s do some math. If you keep $200 in your account and the market goes up by 7% (its average), you’ll have a return of around $214. But after taking out Acorn’s $12 fee, you’re only $2 richer (and that’s before you pay capital gains tax on your earnings).

Quick Review (TL;DR)

Setup: There are five ETFs (Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive).
Fees: There's a month trial, but it's $1/month after that. It's free for college students.
Trading Options: There are only five ETFs, which is a good thing for beginning investors.

Who is this for?

Acorns is best for you if you want psychological incentives to save with Round-Ups. Your leftover change from your purchases is reinvested automatically. You have limited investing options which keeps it simple. It's a no-brainer for college students because it's free.