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I'm thoroughly confused by what Acorn does. I can see that you have to pay them $1/mo, and of course they get access to every single credit card transaction you do.

In exchange for this, they claim to provide some kind of "spare change investment". I feel like I must have misunderstood, because it sounds so silly, but apparently it works like so:

  1. You decide to buy product X with your card which costs $2.75.
  2. The transaction reaches Acorn, they take the nearest whole number ($3), and then take the difference ($0.25) out of your card and into your "Acorn account".
  3. The acorn account is acts like a simplified mutual fund that invests your money.

Is this right, or is it something else, such as Acorn matching the .25 with their own money or something like that? If my description above is accurate, this seems absolutely pointless. I could just not use Acorn, and my CC statement would be $0.25 less, then I could take that $0.25 and transfer it into my investment account myself (together with other "spare changes").

I suppose the one interesting thing you get is being able to invest against your credit card, which in most other cases is not allowed. But since interest on credit cards is so high, if you want to invest borrowed money you'd be better off with almost any other loan anyway.

Is there any real benefit to using Acorn, besides soft benefits like "it helps people get over their anxiety about investing" and "it encourages fiscal discipline/good spending habit"?

  • Actually the idea that Acorn is charging the credit card for the investment deposit is really flummoxing to me... I'd wager you give over a checking account as well and small ACH transfers are drawn periodically. I just can't fathom that Acorn is paying the CC Tx fee and the users could potentially owe interest on the charges. Personally I love the idea of saving the change, but I agree, without signing up to find out for yourself there's not a lot of information related to the actual mechanics of the service. – quid Aug 10 '16 at 17:34
  • ScotiaBank in Canada has a similar "Bank the rest" program. I've used it for years to force me to save a little extra. – Carcigenicate Aug 10 '16 at 19:25
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    It's a lot like the traditional concept of taking all your pocket change and throwing it into a jug. Then years from now you realized you saved up hundreds of dollars without even trying. Now whether charging it off a credit card and also monthly payments makes it worth it I do not know. – DasBeasto Aug 10 '16 at 19:37
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Yes, that's all they do. It's effectively an "automatic saving/investing" program. Bank of America does something similar with "Keep the Change", transferring the leftovers from checking to savings.

The basic concept here is that people are lousy at saving, so if you put money into savings/investments in some way that is not in your control, it will be better than if you do it under your control even if it costs something because you're going to spend whatever your checking account balance is - so if that balance is artificially reduced, you'll not spend that money and instead have it in savings. This may be effective for some people, I don't know. Not something I would touch with a ten foot pole.

  • Won't this make it worse though? Presumably the stuff these people buy already drains their entire paycheck every month. When they buy the same stuff with Acorn's rounding on top, their CC statement will now exceed their paycheck. Or are they supposed to keep on eye on their CC balance and cut down their spending accordingly? – Superbest Aug 10 '16 at 16:32
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    @Superbest Well, the idea is that they are spending money because it's there, so take the money away and they won't spend it. I agree that it is unlikely to help in the majority of circumstances. – Joe Aug 10 '16 at 16:48
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    "that is not in your control" I hope it would be appropriate to rephrase that as, "that is automatic so you don't have to remember to do it". ...If not, well, that would be um... shady. – jpmc26 Aug 10 '16 at 21:46

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