Learning how to put your savings on autopilot is one of the best things you can do for your money. And in addition to automatic transfers, it’s best to keep your money somewhere you (almost) forget exists.
That’s important for everybody, but even more so when you’re on a tight budget. I’ve been there, and I know how the urge to pause saving transfers or, worse, raid the savings account can come all too often.
So credit is due to the founders of Digit.co, a new app that makes automatic saving virtually invisible.
Digit works like this:
You link your checking account to Digit’s secure Website. (It takes 5-10 minutes and you’ll need your account and routing numbers plus answers to any security questions on your account).
You confirm your account via text message. After setup, you can control your account almost entirely by text – you simply text Digit commands like “check balance” or “withdraw”.
Over the first couple of days, nothing happens. With their proprietary algorithm, Digit analyzes your historical spending and checking account balances.
Then, Digit makes small periodic savings transfers from your checking account to your Digit account. The transfers are small (a few bucks) and will be timed (presumably) not to interfere with bills or other expenses.
Your Digit savings balance grows. You can pause transfers or withdraw your balance anytime, but mostly it should be used as a (nearly) forgotten emergency fund.
Perhaps Digit won’t replace a larger account set up for large unexpected expenses, but I think of it like an online change jar. In a year or two, perhaps there will be something you need a couple hundred bucks for but feel you don’t have the cash – until you remember your Digit balance sitting there!
At the moment, Digit is completely free to use, but they don’t pay interest on your savings balance. With even the best savings account interest rates barely scraping 1 percent, that doesn’t seem like a terrible price to pay for the benefit of forgotten savings.
What’s the catch?
So the idea behind Digit is pretty sweet, but what’s the downside?
First of all, some users will have issues linking their bank account.
Like all Web and mobile apps that require linked bank accounts (think of Mint and other budgeting apps, if you’ve ever tried them), Digit can connect to hundreds of major financial institutions. If you’ve got a big bank, chances are good they can connect.
But even after you’ve connected, some banks have security features that make it more difficult to maintain that connection. I have TD Bank, for example, which requires you to answer a security question every time you log on from a new browser. Digit wants to analyze my checking account daily, which means that every day I get a text message asking me to answer the security question. That’s a hassle that, unless remedied, would probably lead me to abandon the service for now.
Similarly, some small banks and credit unions may not be able to connect to Digit. The only way to know for sure is to try.
My verdict on Digit is that it’s a genius idea for helping us save in a way that we may not even notice. Every user’s experience will vary depending on your bank’s technology, but with a smooth connection Digit should be as close to “plug and play” as a financial app can get.
*Digit also pays $5 for every friend you refer (so if you signup, thank you! And don’t forget to recommend it to your friends to seed your own digital change jar!)