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Saving spare change and using round-up apps can help you bolster your savings, possibly in a meaningful way. Spare change savings (also known as “micro-saving”) can be a great way to kickstart your savings and also help you start automating your finances.
However, not all spare change apps are created equal. Some charge fees, which can quickly erode your savings. And some invest your savings, which adds an element of risk that may not be ideal if you’re focused on a short-term goal.
Here are some key things you may want to keep in mind when choosing a spare change savings app.
Key Points
• Spare change savings apps round up purchases to the nearest dollar, transferring the difference to savings or investments.
• Benefits include automated savings, earning interest, and easier entry into investing.
• Drawbacks can include fees, investment risks, and potential overdraft issues.
• Choose an app that aligns with financial goals, has low fees, and ensures security.
• Some banks offer similar rounding features, providing a no-fee alternative to third-party apps.
How Does Spare Change Saving Work?
The philosophy behind spare change savings is “little and often.” Every time you spend money, whether it’s on gas, groceries or dining out, an app rounds up that purchase and saves the change for you.
Spare change savings apps typically connect to your credit and/or debit card, take the virtual change from your linked checking account, and put the money into a savings account. For instance, if you buy a sandwich for $5.80, the app will automatically transfer 20 cents from your checking account into a savings account. It’s one way to automate your finances. Little by little, this cash can accumulate and help you reach goals, such as starting an emergency fund.
Some spare change apps put your money into a traditional savings account or a checking and savings account. Others invest your money in small portfolios, based on your risk tolerance and financial situation. There are also spare change apps that use saved funds to pay off debts that you designate, such as credit cards or student loans.
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The Benefits of Spare Change Savings
There are a number of potential benefits to spare change savings. Below are some of the reasons you may want to try using one of these apps.
Makes Saving Easy and Automatic
One of the biggest advantages of spare change savings is that it’s automatic. You don’t have to remember to bring your change to the bank or transfer money from checking to savings after you get paid in order to save money from your salary. And, unlike the change jar, the money saved is out of sight and out of mind.
If you’re struggling to save money, setting up a spare change savings app can help jumpstart the process and make it relatively pain-free.
Recommended: Emergency Fund Calculator
Allows Your Savings to Earn Interest
Unlike the piggy bank method, a spare change app can put your savings into an account that can earn interest, such as a high-yield savings account, and help your money grow over time.
Can Make Investing Less Intimidating
Some spare change savings apps, known as “micro-investing” apps, will offer users the opportunity to invest their money in stocks, bonds, and/or exchange-traded funds (ETFs). This involves risk, mainly because of market volatility and the lack of insurance for investment products.
Micro-investing apps can make it easier to get started with investing, even if you currently don’t know anything about it. Generally, they’ll recommend a portfolio based on your goals and time horizon, turning your spare change into an investment on a small scale, such as through fractional stock shares or small dollar purchases of other investment products, which can be a good way to experiment.
May Provide Other Ways to Save
Some spare change savings apps partner up with other brands that will kick in a percentage of every purchase you make to your savings account. For example, if an app partners with Macy’s or Apple, every time you make a purchase from one of those retailers, a small percent of the total you spend would get added to your savings account (in addition to the round-up amount taken from your checking account).
Disadvantages of Spare Change Savings
There are some potential downsides to spare change savings apps. Here are a few drawbacks you may want to consider before signing up for one of these apps.
May Charge Fees
Some spare change apps charge monthly (and other) fees for using their services. Before signing up for an app, it’s a good idea to read the fine print and look into what, if any, fees you may be charged and how often.
Even if the fees are small, they could quickly eat into your savings, especially since the dollar amounts you’re putting away are small.
Could Lose Money Through Investing
If you choose to put your spare change savings into investments, there is some risk involved. Depending on market fluctuations, your money could grow. On the other hand, you could potentially lose some or all of your savings.
May Not Be Ideal for Emergency Funds
If you go with an app that invests your savings, you may not be able to access the money immediately, which could be an issue if you’re faced with a financial emergency.
Another potential problem is that if your account is down in value at the time you need to withdraw the money, you would have to take a loss instead of waiting for market conditions to improve. In this scenario, it might be wiser to keep your funds in a traditional or online bank account.
Might Trigger an Overdraft Fee
If your checking account is close to zero after you make a transaction, and then the spare change app rounds-up the transaction and withdraws additional funds, you could end up overdrafting your account. This could result in getting hit with a hefty overdraft fee.
The Takeaway
While each spare change app functions slightly differently, they all revolve around the same basic concept: You save small increments of cash that you likely won’t miss. The money gets put into a savings account. You can then use the money to work toward your savings goals. If the concept appeals to you, you might look for a bank that offers this feature or try a third-party app.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is there an app that saves your spare change?
There are round-up apps that help you save your spare change by rounding up purchases and payments to the next dollar and putting the difference into an account. You might see if your bank offers this feature, or try a third-party app.
Do banks take spare change?
Most banks will accept spare change, but it’s wise to check in advance to make sure and to see if there are any conditions. For example, the coins might have to be prerolled and/or you might have to hold an account at the institution.
Is investing spare change a good idea?
Investing spare change can be a good idea, but investing carries risk. It is possible to lose money as well as grow your cash, so be sure you are comfortable with that potential.
About the author
Kylie Ora Lobell
Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa. Read full bio.
Photo credit: iStock/Nattakorn Maneerat
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