Americans love to spend more than save. That habit has lead to a retirement crisis with too many folks coming up short in their golden years and younger generations overwhelmed by debt.
Is Digit, a relatively new app, the answer?
"While everyone understands the importance of creating a nest egg or rainy day fund, Americans have a poor track record when it comes to saving. The millennial generation had a -2% savings rate in 2014 and 75% of Americans reported they were stressed about finances this January," says Ethan Bloch, CEO of Digit.
Digit aims to help. "Our goal is to make the saving process as smart, stress-free, and automatic as possible," he says.
How does it work? Digit’s intelligent algorithm studies spending and income history, looks for daily savings opportunities that you would normally not even notice. Every two or three days, Digit transfers some money, usually $5-$18, from your checking account, to your secure, FDIC-insured Digit account. There are no fees for usage or withdrawal, and no restrictions on the number of transfers each month, says Bloch. Simply text Digit and money arrives back in your checking account the next business day. Digit sends you regular texts to provide you with visibility into how much money has been saved, along with words of encouragement when you hit savings goals.
"Saving automatically removes the emotional and mental commitment to start. If you have difficulty saving this app allows you to eliminate yourself from the problem so you can start winning with money," says Natasha Campbell, founder and CEO of Lifestyle Success Unlimited, a wealth wellness company that does financial makeovers for individuals.
Financial blogger J. Money is a big fan, "I signed up with them in January and I’ve already saved $764."
Kai Yaniz, a financial coach has personally used Digit. "With Digit you save without thinking about. You don’t have to set up manual transfers to a savings account since Digit does it for you. Budgeting how much to save each month isn’t necessary either because Digit does that too – all this for free," says Yaniz.
Jon Dulin, author of 7 Investing Steps That Will Make You Wealthy, says Digit aligns with the principle of paying yourself first. "A lot of people plan to save what’s left at the end of the month, but when the end of the month comes they have no money so they can’t save. With Digit you save as you go. It’s the same reason why the IRS takes money from our paychecks. If they didn’t, people wouldn’t have the money to pay their taxes at the end of the year," says Dulin who has saved $600 in four months of using Digit.
However, there are two sides to every coin. With Digit, there are some negatives. "This seems like a good app on the surface, but it’s a lot of personal information to provide to a third party, and relies on people who use direct deposit and online billing. It may be easier to just up your checking account to auto-deduct a certain amount into savings on a weekly or monthly basis, says Brent Shelton, an online shopping expert with FatWallet.com.
Campbell points to the fact that your savings earn zero interest. Digit pockets the money that it earns on the funds. Don’t need your money in a hurry. "It takes a business day to get your money," she says. Digit also isn’t aligned with all banks and credit unions yet. For now, Digit only works with U.S.-based banks.
But Dulin puts things in perspective, "Digit doesn’t pay interest, but given that interest rates are so low now, I don’t see it as a ‘deal-breaker’. It’s far more important to start saving than it is to worry about the interest rate you’re getting. There’s talk that the company will eventually pay interest too."