How Does Acorns Work & How Does it Compare?

The Acorns investing app is one of the most popular micro-investing apps on the market, and it’s built on the idea that if you save your spare change, it will add up. And they’re breaking down the barriers to traditional investing with a tech-driven approach that make investing easy for newbies and those who don’t feel like have enough to start.

For as little as $3 per month, Acorns will recommend a portfolio, automate your investments, and manage your account. Sounds pretty sweet? But let’s take a closer look at how Acorns works, how it compares to other services, and whether or not it’s worth for you.

How does Acorns work?

Acorns is a micro-investment app that uses technology to automate the investing experience for you. They have a handful of features that make it possible for you to invest small amounts of money in micro shares, or fractional share, of ETFs or stocks instead of full shares. 

They take a robo-advisor approach to selecting exactly how to invest your money, which means they invest your fund in a portfolio of low-cost ETFs that’s meant to help you reach your goals. 

That’s the short version of how Acorns works, now lets dig deeper into Acorns’s features.

1. Acorns Round-Ups

Round-Ups are what Acorns is really well-known for, and it’s meant to be a mindless way to invest your money, especially if you don’t feel like you have a lot of money in the first place.

The way this feature works is by first having you link a debit or credit card to your Acorns account, and you also link a funding source. When you use the linked card to make a purchase, the Acorns app rounds transactions up to the next dollar amount and invests the difference. 

For example, if you spend $4.63 on a latter, Acorns will round that charge up to $5 and invest the $0.37 difference in your investment account. If you spend $20.45 eating out, Acorns will round that up to $21 and invest the $0.55 difference. 

Once you have $5 in Round-Ups, Acorns withdraws money from your funding source and uses it to purchase micro-shares of ETFs for your portfolio.

To get to $5 faster, you can turn on Multipliers. There’s a 2x, 3x, and 10x multiplier that grows your spare change even faster. So the $0.37 that would be invested from buying a latte becomes $0.74, $1.11, or $3.70.

All of your Round-Ups settings can be adjusted and turned on and off in the Acorns investment app. You can set your Round-Ups settings for manual, which means you pick the round-up amount for each transaction.

Acorns lets you link more than one card for Round-Ups, and all of your cards can use the same funding source. You can keep track of how close you are to reaching the $5 withdrawal minimum on your dashboard.

M$M tip: Check out our full Acorns Review for even more details.

2. Acorns Earn

Earn gives you money that Acorns invests for you for signing up or shopping with one of Acorns’ 350+ different partner companies. The amount you earn varies from company to company, but it’s typically a percentage of your purchase or a flat amount. 

Here are some recent Acorns Earn offers:

• $13 when you sign up for a new Walmart+ membership
• $35 for signing up for Blue Apron
• $0.25 when you purchase $20 in fuel at Chevron
• $8 by signing up for ESPN+

All of the Acorns Earn offers have elgiibilty requirements, so make sure to check those out before assuming the offer apple to you. The requirements may be something like you must be a new member or starting a subscription for a certain length of time.

Acorns also has a Chrome browser extension that automatically applies offers when you’re shopping through the browser.

Be aware that Earn offers take 60-120 days to be deposited into your account, and you can keep track of what you’ve earned in the Acorns app.

Once the money you’ve earned hits your Acorns account, Acorns automatically invests it for you.

Related: 5 Best Micro-Investment Apps of 2021 & What Beginners Need to Know

3. Diversified portfolios

When you sign up for Acorns, you’ll be asked a short series of question about your financial situation. These questions help Acorns curate your account and choose the portfolio with the best asset allocation for your goals.

You’ll be asked about your employment status, net worth, investing goals, etc. Again, this information is being used to personalize your experience. From there, Acorns will recommend one of five different portfolios for you. You can stick with their recommendation or go with one of the other portfolios.

Acorns uses Modern Portoflio Theory to develop each of their portfolios, which range in risk from conservative to aggressive. The holdings in each portfolio may change over time, and Acorns is required by the SEC to share a prospectus for each of their holdings. You can access all of that on the app or website.

Acorns recently started offering sustainable ESG (environmental, social, and governance) portfolios that are built to provide exposure to companies that are rated as sustainable by MSCI. For example, companies that fall under environmental sustainability are ones that focus on renewable energy, animal welfare, or lowering CO2 emissions.

There are 4 sustainable portfolios: moderately conservative, moderate, moderately aggressive, and aggressive. 

4. Automatic rebalancing

Automatic rebalancing is a feature you’ll find with most robo-advisor because it’s a way to keep your portfolio balanced and hitting your target asset allocation as you invest more money or withdraw money. And Acorns rebalances your portfolio every time money moves in or out of your account.

They also review your account on a quarterly basis and rebalance anytime the percentage of one of your holdings drifts 5% over or under target allocation. They sell off share that are overepresented and use those funds to purchase underrepresented funds.

If you ever want to change your portfolio -- Acorns doen’t recommend you do this often or at all -- Acorns will rebalance to adjust your portfolio to match your new risk profile.

Unfortunately Acorns does not use tax loss harvesting as part of their investment strategy, so there may be tax implications when they rebalance. Depending on how much is sold off to rebalance your account, you may wind up owing something at tax time.

If tax loss harvesting is important to you, I recommend checking out Betterment or Wealthfront. Both are robo-advisors like Acorns, and while neither do Round-Ups, they offer micro-shares to put all of your money to work and to keep investing affordable.

5. Acorns Checking

Acorns checking account feature comes with the Acorns Personal plan (the $3/month subscription tier). You’re sent a debit card that activates Round-Ups in real-time, meaning you don’t have to wait until you hit the $5 minimum to invest. 

Acorns Checking also features:

• No minimum balance
• No overdraft fees
• No fees or fee-reimbursement for ATMs

Acorns Checking accounts are FDIC-insured up to $250,000.

6. Acorns Early

Early is a custodial account for children and is included in the Acorns Family tier. These are UTMA/UGMA accounts, not 529 plans, which means the money isn’t designated only for educational expenses. UTMA stands for Uniform Transfer to Minors Act, and UGMA stands for Universal Gifts for Minors Act.

You invest money in your Acorns Early account like you would the individual taxable account, and the parent or guardian controls the funds until the child reaches the “age of transfer.” That’s basically until they are legally considered an adult.

7. Acorns Later

Later is Acorns retirement account feature, and it the Acorns investing app offers three kinds of IRAs (Individual Retirement Account):

• Roth IRA: Best for individuals who make less now than they’ll make in retirement.
• Traditional IRA: Better for those earning more now.
• SEP IRA: Good for self-employed people who want to make tax-deductible contributions to a retirement account.

Acorns will recommend a retirement portfolio for you based on your age now and the time it will take you to reach retirement age. This portfolio will be rebalanced a you get closer to retirement, generally for a more conservative portfolio.

Related: 10 Best Investment Apps of 2021

How much does Acorns cost?

Acorns charges flat rate subscription fees for each of their two subscription tiers:

• Acorns Personal – $3/month: Includes a personal investment account, tax-advantaged retirement account, and access to a checking account option. Acorns Checking is a no-fee checking account with access to over 55,000 fee-free ATMs. 
• Acorns Family – $5/month: In addition to personal, retirement, and checking accounts, this plan comes with custodial investment accounts for children. 

Flat fees are easy-to-understand, but they can be expensive if you hold a lower account balance. This is one of the downside to using Acorns.

Most robo-advisors, like Betterment, charge you based on your assets under management, or the value of your holdings. This is commonly referred to as AUM. The more you invest, the more you pay.

Acorns charges flat rates that end up being a much higher percentage of your AUM when you have a low account balance. For example, if you have $100 in your Acorns account, paying $1/month for a personal account means you are paying a monthly management fee of 12%. Most robo-advisors charge a monthly management fee that’s much closer to 0.25%.

But once your account balance grows, the cost of Acorns becomes more affordable.

• With $500 invested, the fee is 2.4%
• $5,000 invested is 0.24%
• $10,000 invested is 0.12% 

How does Acorns compare to other investment services?

I’ve mentioned a couple of alternative robo-adviors to Acorns already -- Betterment and Wealthfront -- but Stash is another popular alternative. Stash also charges a flat monthly management fee and does Round-Ups too.

Here’s how Acorns compares:

You can learn more in Betterment vs. Acorns and Betterment vs. Wealthfront.

Is Acorns worth it?

Acorns is a legitimate investment brokerage, and it’s designed for a very specific kind of investor: someone who’s struggled to invest in the past because they don’t know much about investing or feel that they lack the funds to start investing in the first place.

For those investors, Acorns can be a great entry into the world of investing. You can watch your Round-Ups add up, set up recurring deposits to grow your investment balance, and you get a solid feel for how the market works.

The app itself is easy to use for new investors, but it’s lacking in a few places. One, there are limited account type, limited investment types, and it’s more expensive than other robo-advisors if you have a low balance. There’s also the risk that you won’t invest enough if you’re relying on spare change alone.

That being said, Acorns may be worth it for new investors who have avoided investing because of barriers like cost and difficulty. Acorns invetsting does a great job at removing those hurdles to teach you about investing.

Acorns won’t be a good fit for active investors, those with complex financial situations, or people who want more investment offerings, like crypto or options trading.

How does Acorns work? The final word

Acorns is a robo-advisor that is built on the premise that spare change adds up. You simply open your account, connect your debit and/or credit cards, and Acorns rounds your transactions up and invests the difference whenever you make a purchase from a linked account.

It’s like if your piggy bank invested your money in the stock market. 

It’s a really cool idea that is great for new investors who feel like they lack the money or knowledge to start investing. But pay attention to the fees and don’t think spare change will be enough for retirement.