M1 Review – Invest, Borrow & Spend With One App

More than a few online banks are, to be blunt, cookie-cutter. They don’t do much to distinguish themselves beyond keeping management fees lower and yields higher than national or multiregional brick-and-mortar banks. As much as these carbon-copy banks might claim to be different or unique, there’s just not much reason to choose one over the other.

M1, however, really is different. Formerly known as M1 Finance, it’s a nearly all-in-one platform that boasts an FDIC-insured checking account, a robo-advisor that leverages low-cost exchange-traded funds (ETFs) in tax-advantaged retirement accounts and taxable investment accounts, and a novel borrowing solution that doesn’t require credit underwriting. It’s unlike anything else on the market today.

M1 has some important drawbacks, including an inherently risky borrowing process with the potential to magnify investing losses. But it’s also one of the few online-only solutions for savvy consumers seeking to consolidate most of their financial lives under the same roof without sacrificing a full range of investment options.

M1 Plans and Features

M1 has two plans: a free version that includes all of the platform’s main features, and a reasonably priced paid plan that’s likely to pay for itself at higher account values.

Free Plan (M1 Standard)

M1’s free plan includes three verticals:

M1 Spend

M1 Spend is a free checking account without the baggage (or fees) of a traditional bank account. It includes:

• FDIC Insurance. Like most traditional bank accounts, M1’s Spend account is FDIC insured up to the federal per-account limit of $250,000.
• No Minimum Account Balance. There’s no minimum to open or maintain a Spend account.
• Debit Card for Everyday Purchases. The M1 Spend account comes with a debit card that’s accepted at millions of online and offline points of sale. However, under the Standard plan, everyday spending doesn’t earn cash-back rewards.
• Online Bill Pay. M1 Spend has a free online bill pay system you can use to pay businesses and individuals.
• One ATM Fee Reimbursement Per Month. M1 reimburses one ATM fee per month. Beyond that frequency, you’ll be on the hook for any third-party ATM fees you encounter.

M1 Invest

M1 Invest is a low-cost taxable or tax-advantaged (Roth IRA, traditional IRA, or SEP IRA) managed investment account and investing platform. Backed by industry-leading automation and surprisingly sophisticated investment strategies for a robo-advisor, its key features include:

• SIPC Insurance. M1 Invest balances are SIPC-insured up to $500,000 per account.
• $100 Minimum to Invest. You need at least $100 to open and fund a taxable M1 Invest account. Retirement accounts require a minimum deposit of $500.
• Margin Accounts. The M1 Invest investment platform allows investors with at least $5,000 in investable assets to trade equities using borrowed funds. M1’s margin account anchors the Borrow vertical as well. Before you take advantage of this option, be sure to familiarize yourself with the risks associated with trading on margin — the practice can increase your portfolio’s upside but may also magnify your losses. Consult a financial advisor if you’re not sure margin trading is right for you.
• Unlimited Free Trades. There’s no limit to the number of stock and ETF trades you can place through your M1 Invest account, and you’ll never pay commissions or other trading fees on executed trades. If you plan to trade frequently (making many trades per day), you may be subject to additional compliance requirements due to the SEC’s regulations around day trading.
• Custom Portfolios (Custom Pie Investing). M1 investors can build custom portfolios composed of whole or fractional shares of virtually any exchange-traded security, including individual stocks and ETFs. 
• Expert Portfolios (Expert Pies). Hands-off investors can also choose from a library of custom portfolios (expert pies) designed by expert investors and composed of stocks and ETFs (pie slices) selected for diversification, performance, and other objectives. Expert pie investment portfolios are appropriate for a wide range of risk tolerances, time horizons, and asset class preferences. M1 does not charge management fees on Expert Portfolios holdings, although component funds may charge expense ratios and other fees that M1 can’t control.
• One Trading Window Per Day. Under the Standard plan, M1 Invest offers one trading window per day. All trades scheduled for a particular date take place within this window, regardless of market price.
• Dynamic Rebalancing With Tax-Loss Harvesting. Although they’re not tax-advantaged, M1 Invest portfolios are designed to be tax-efficient. M1 also rebalances portfolios periodically to keep them from straying too far from investors’ preferred allocations.

M1 Borrow

M1 Borrow is a low-interest portfolio line of credit that lets you borrow against the value of your Invest portfolio. You must have at least $5,000 in your Invest account to qualify.

M1 Borrow features:

• Guaranteed Approval Up to 35% of Portfolio Value. Because they’re secured by the actual value of assets held in your portfolio, Borrow loans don’t require a credit check and fund rapidly. You can borrow up to 35% of your portfolio value at any given time.
• Low Regular APR. Borrow loans carry a fixed APR that’s far lower than the typical low-APR credit card and significantly lower than home equity line of credit rates for well-qualified borrowers. Although it’s subject to change with prevailing interest rates, Borrow APRs are roughly in line with conventional 30-year mortgage APRs.
• Flexible Loan Purpose. You can use your Borrow loan for pretty much anything: purchasing additional equities, funding a home remodeling or improvement project, consolidating or refinancing existing debt, supplementing your emergency fund. But remember, borrowing against the value of equities held in your portfolio carries risks not presented by other forms of credit, such as magnifying stock market losses.
• Flexible Repayment Schedule. M1 Borrow loans have flexible repayment terms — you can pay off your loan as quickly or deliberately as you wish, although you’ll pay less interest overall with prompt repayment, of course.

M1’s Paid Plan (M1 Plus)

For $125 per year after a one-year free trial, M1 Plus delivers these additional features:

• Two Daily Trading Windows. M1 Plus adds a second daily trading window, presenting another opportunity to fill scheduled orders and increasing the chances of filling those orders at a favorable market price.
• Metal Debit Card. M1 Plus customers get a complimentary tungsten metal debit card — a classy addition to any wallet.
• High Checking Yield. M1 Plus customers enjoy high checking yields in line with the top high-yield online checking accounts on the market. Checking yields are currently 5.00% APY but are subject to change with prevailing interest rates.
• 1% Cash Back on Debit Transactions. M1 Plus customers earn unlimited 1% cash back on debit transactions. That’s $1 back on every $100 spent.
• 4 ATM Fee Reimbursements Per Month. M1 Plus customers earn up to four ATM fee reimbursements per month, or about one per week. That’s three more than M1 Standard customers.
• 1.50% Discount on Borrow Loans. M1 Plus members get a 1.50% rate discount on Borrow loans, making the product even more competitive.

Advantages of M1

Here’s why you might want to open an account with M1. Key benefits include no account minimums for checking accounts, very low borrowing costs, and no credit check for portfolio loans.

• No Account Minimums for M1 Checking Accounts. M1’s Spend account doesn’t carry a required minimum balance at opening or ongoing cash balance requirement. You can open an account with the digital equivalent of the spare change in your pocket if that’s all you can afford at the moment.
• Very Low Borrowing Costs. M1’s Borrow loans are remarkably low-cost. Because they’re secured by the value of assets held in your Invest portfolio — not unlike the security deposit you put down when applying for a secured credit card — they carry less risk for the underwriter (in this case, M1) than unsecured credit cards or personal loans. That means M1 is free to pass on the savings.
• Loan Approval Is Guaranteed When You Meet the Minimum Asset Requirement. M1 lets you borrow up to 35% of the value of your portfolio’s assets, provided you’ve met the minimum invested assets balance of $5,000. Because the loan is secured by your account and there’s no credit underwriting process, approval is guaranteed. That’s a big advantage over most competing borrowing options, which require credit underwriting.
• Ability to Own Any Security in Your M1 Invest Account. You can own virtually any security in a custom M1 Invest portfolio, not just a set of cookie-cutter index portfolios. While M1 doesn’t have the sorts of tools and value-added features truly sophisticated traders demand, it’s a decent choice for investors who prefer some say in their portfolios’ composition.
• Entirely Hands-Off Investing Option. On the other end of the investing spectrum, M1’s custom portfolios with automatic rebalancing offer an entirely hands-off experience. If you’d prefer not to think about what’s happening to your money on a weekly basis or manually adjust your asset allocation every quarter, this is your chance.
• Unlimited Trades With Fractional Shares. M1 allows unlimited free trading in fractional shares, greatly improving portfolio flexibility (and increasing M1’s appeal to active traders) while reducing cost.
• Solid Cash-Back Rate With M1 Plus. M1 Plus delivers unlimited 1% cash back on debit card spending, significantly reducing or entirely offsetting the annual fee when used frequently. If you use M1 Spend as your primary bank account, your net expense may well be positive.
• Nice Checking Yield With M1 Plus. M1 Plus delivers an impressive checking yield in line with the top high-yield checking accounts on the market today. The actual yield is subject to change with prevailing rates, but you can count on a decent return on your money here.
• Loans Don’t Adversely Impact Credit. Because it doesn’t involve credit underwriting, M1 Borrow doesn’t adversely impact delinquent borrowers’ credit. There are other drawbacks to failing to repay loans in a timely fashion, of course, but a low credit score is one that M1 Borrow avoids.

Disadvantages of M1

Consider these disadvantages carefully before opening an account with M1, and especially before paying for an M1 Plus account.

• Borrowing Against Securities Is Risky. Borrowing against the value of a securities portfolio is inherently risky. Should the value of your portfolio decline, you’ll still be on the hook for what you borrowed, deepening your net loss.
• M1 Borrow Doesn’t Build Credit. While the lack of credit underwriting is nice for Borrow users without great credit, there’s an obvious drawback here: no opportunity to build credit. If one of your top borrowing priorities is to begin building credit, you may want to start with a secured credit card instead — or try other strategies to build credit without a credit card.
• No Savings Accounts. Although M1 Plus members enjoy strong checking yields, M1 doesn’t have a pure savings account with even higher yields. Neither does it offer money market accounts or CDs. If you’re seeking a place to earn interest on parked cash without putting it to work in the market, keep looking.
• M1 Plus May Not Pay for Itself at Lower Asset Values. M1 Plus carries a substantial annual cost that low-asset members may not be able to recoup. Whether the platform is worth the investment in such a case depends on how much value you feel you’re getting out of it.

How M1 Stacks Up

M1 does a lot of things really well, but how does it actually stack up against the competition? Let’s see how it compares against two well-known competitors: Betterment and Wealthfront.

Final Word

M1 is a versatile platform that has almost everything you could ask for in a personal finance partner — almost. With no traditional savings vehicles, it’s not a great place to stash cash you won’t need right away.

Still, M1 is a fantastic asset for anyone seeking a new way to bank, borrow, or invest. For those willing to accept the substantial risk of loss, the margin loans are particularly interesting — they don’t require credit underwriting and are therefore appropriate for folks whose FICO credit scores would normally disqualify them from prime-rate borrowing.