Digit Review – A Great Tool to Automate Your Savings

I’m in favor of anything that makes it easier to add to my savings account balance, and Digit definitely fits that bill.

This personal finance app is a free-to-join, automatic savings tool that ties into your checking account. It then uses a sophisticated algorithm to analyze your income and spending habits.

With this information in hand, Digit calculates and executes regular transfers to your FDIC-insured Digit savings account and Digit investment accounts, typically every week or every few days.

What Is Digit?

You don’t have to direct or schedule your Digit transfers in any way. In fact, you don’t even know in advance how much this micro-savings app will transfer.

With its automated, hands-off saving algorithm, pretty much all you have to do is sit back and watch your savings account balance grow over time. If you’re unsatisfied with the pace of Digit’s automatic withdrawals, you can tell it to save more or less with each withdrawal.

Digit isn’t the first online tool designed to simplify and incentivize savings. There are plenty of bank-run programs, such as Bank of America’s Keep the Change, which both allow for recurring checking-to-savings transfers and small, automatic savings deposits when you make a debit card purchase.

And, of course, you can set up recurring checking-to-savings transfers at banks — including online banks such as Ally Bank and Capital One Bank — without formal savings incentive programs.

The difference is that Digit is the first completely automated savings app for iOS and Android. When it first launched, the Digit app was functionally unique, although it has since spawned imitators.

Digit has added features over the years, including a handy new tool that analyzes your cash flow and tells you exactly how much you can safely spend every day, and now boasts taxable and tax-advantaged investment account (retirement account) options managed by a low-cost robo-advisor too.

Digit is free to join and use for 30 days. After that, it carries a $5 monthly fee. A 0.10% annualized yield — or “Savings Bonus,” in Digit’s parlance — offsets this monthly charge, although Digit only pays out once every three months.

There’s no minimum balance required at any time and no minimums required to earn the interest rate on this high-yield savings account.

All told, this savings app has some useful advantages over any other program, account, or service on the market, plus a few drawbacks that may hamper your experience.

How It Works

Here’s how Digit works. Below, we cover the sign-up process, basic account management practices, and procedures for transfers and withdrawals.

Sign-Up for New Users

To get started with Digit, you need to provide some basic personal information and contact details. You’ll then be asked to securely link your bank account with your new Digit account.

You won’t need to provide your account number or routing number, and the link usually happens near-instantaneously.

Account Management and Automated Savings

Once you’re set up with your FDIC-insured Digit savings account, the app goes to work. It uses its proprietary algorithm to get a sense of your spending (debit transactions and ATM withdrawals), income (paychecks), and recurring obligations (monthly bills).

To get the most out of Digit, you should make sure that all important bills are included in your checking account’s bill pay system — or otherwise paid out of the tied checking account — so Digit’s algorithm can see them.

The same goes for paychecks and other income sources. Digit doesn’t know what goes on outside the tied checking account, so you need to make sure it has as much information as possible.

Inbound Transfers

Based on your income, spending patterns, and obligations, Digit begins making transfers from your checking account to your savings account, the first typically coming within a week of sign-up. These transfers are entirely automated; you never have to set an amount or frequency.

Digit’s algorithm only allows for transfers it thinks you can afford, so there’s little chance of an overdraft or cash crunch. After the first one, transfers usually happen every two or three days in relatively small amounts.

Bear in mind that you may not receive a notification of each withdrawal. However, if Digit determines at any point that you really don’t have the funds to save money right then, it simply stops making withdrawals until you can afford them again.

In the meantime, Digit keeps a rolling tally of your discretionary income and tells you exactly how much you can safely spend on any given day.

Withdrawals

You can withdraw funds held in your Digit account whenever you wish, with no daily or monthly limit, and have the money in your checking account the following business day.

You can also manually override Digit’s automatic transfer algorithm and make manual deposits into your Digit account at any point, provided you have enough money in your linked checking account to support the transfer.

Key Features

Here’s a closer look at some of Digit’s key features, including Digit’s investing and retirement platforms, Digit’s savings goals feature, and the Digit Pay bill payment feature.

Digit Investing

Digit’s investing feature is a micro-investing app that allows you to put your money to work in the stock market without assuming unwise levels of risk or setting aside more than you can afford to lose.

Like Digit’s savings tool, this feature automatically transfers funds that you can safely invest into a diversified portfolio of ETFs that can grow over time. Digit takes the long view, looking for sustainable, long-term opportunities rather than short-term gains.

Digit Retirement

Digit’s retirement feature matches you with the right tax-advantaged investment account for your income level (like a Roth or traditional IRA) and automatically reserves a portion of your savings for your retirement goals. Once per month, Digit invests those savings in a diversified portfolio.

With no account minimums or deposit requirements, it’s easy to kick-start your retirement planning with Digit.

Future Financial Goals (Savings Goals)

Digit lets you set savings goals for just about anything, from your next date night to a down payment on a house to an emergency fund (rainy day fund) for unexpected expenses or financial setbacks. Simply follow the prompts in the app.

Digit Pay

Digit Pay is a free bill pay service designed specifically to help you pay down credit card debt. You can activate it when you set a “credit card debt” savings goal in the app.

No Overdraft Guarantee

Because Digit’s algorithms are designed only to withdraw what you can afford, the likelihood of a checking overdraft due to a Digit withdrawal is low. However, should Digit ever cause an overdraft, the company guarantees reimbursement of any applicable fees.

Customer Support

You can contact Digit directly using the onsite ticketing system. Queries typically produce responses within one to two business days.

Advantages

Digit has some key advantages, including next-business-day transfers, set-it-and-forget-it automation, and unlimited savings withdrawals.

1. Next-Business-Day Transfers

If you need to withdraw from your Digit savings balance, you can have the funds in your checking account on the next business day.

By comparison, transfers from savings accounts — especially from online banks such as Ally — to external accounts can take two or three business days. If you need funds fast, that can be an inconvenient time frame.

2. Set It and Forget It

Digit is unique among savings tools in that it’s completely automated.

It measures your spending and income daily and uses a sophisticated algorithm to determine how much extra money you can save without affecting your lifestyle. If you earn more and spend less, Digit automatically increases your savings. If you earn less and spend more, Digit automatically saves less.

As long as you’re satisfied with the amount you’re saving, you never have to manually transfer funds to your savings account, although you do have that option to fall back on.

This setup is superior both to recurring bank transfers (which need to be manually adjusted to account for changes in income and spending) and budgeting tools such as Mint (which aren’t truly automated).

3. Unlimited Savings Withdrawals

You can make unlimited withdrawals from your Digit savings account — one per day if you like, or even multiple times per day.

Savings accounts at traditional banks and credit unions, including those tied to a recurring savings plan, typically limit withdrawals to six per month. Tax-advantages savings accounts (IRAs) can be even more restrictive.

4. No Overdraft Fees

In the unlikely event that a Digit transfer results in an overdraft from your checking account, the company promises to pay any associated fees and charges.

However, it doesn’t specify if there’s a limit to what it pays in this case. If your balance remains negative for many days on end, you could stretch the limits of this guarantee.

Regardless, you get no such protection from banks such as Capital One Bank, Ally, or brick-and-mortar institutions such as U.S. Bank. These charge daily or interest-based overdraft fees that can amount to $10, $20, $30, or more per day.

5. No Balance Requirements

Digit savings accounts don’t have balance requirements, allowing you to start off saving small amounts of money. That isn’t always true of comparable services offered by big banks such as U.S. Bank and Bank of America.

6. Earn a 0.10% Quarterly Savings Bonus

Digit savings accounts don’t accrue interest in the traditional sense, but they do have de facto yields: 0.10% APY, paid quarterly as a Savings Bonus.

To qualify for each quarter’s Savings Bonus, you must maintain your Digit savings account for the entire three months prior.

Bear in mind that the 0.10% APY is an annualized savings bonus, meaning you earn 0.025% of the balance in your account at the end of each quarter.

Disadvantages

Digit’s downsides include a monthly maintenance fee and no transaction-based withdrawals.

1. $5 Monthly Maintenance Fee

Digit has a 30-day fee-free introductory period. Eventually, however, the bill comes due. After the intro period ends, you’re automatically charged $5 per month.

When you’re just starting out and your balance is low, this charge is likely to swamp your Savings Bonus.

2. You Need to Give Your Bank Account Information to a Third Party

To work properly, Digit requires your external checking account number. That’s a problem if you’re bothered by the thought of providing sensitive financial information to yet another third party and thus increasing your risk of exposure to a data breach.

Safer options include bank-run savings incentive programs with checking and savings accounts under the same roof.

3. No Option for Transaction-Based Withdrawals

Digit doesn’t let you tie automatic checking-savings transfers to a debit card transaction, which is another way to make easy savings deposits — sometimes multiple deposits per day — without dramatically reducing your checking account balance.

Bank of America’s Keep the Change program lets you round up debit card purchases to the next dollar and deposit the difference in your savings account.

Final Word

According to CareerBuilder, nearly 80% of Americans live paycheck to paycheck. That means about 4 in 5 of us don’t save money at all. In that light, Digit’s couldn’t-be-easier savings automation tool is welcome news.

However, Digit isn’t a panacea. It only squirrels away funds on your behalf if you consistently demonstrate that you spend less than you earn. It can’t force you to rein in your spending habits or live within your means.

For that, a strict personal budget and lifetime savings plan are still your best options.