What is Digit and how does it work?
Digit is an automatic savings app that analyzes your bills and spending habits to see how much it can save for you. The app transfers the money it saves to an FDIC-insured bank account and distributes it toward your savings goals. You can choose from Digit’s suggested savings goals, like an emergency fund or a travel fund, or create your own custom goals. If you want to pay off debt, then you can make a custom goal for that.
To use the Digit app, you need to link it to your bank account. Once you do, the app will look at the following information to determine when and how much to save:
- Balance on your linked bank account
- Upcoming income (your paycheck or, if your income fluctuates, your predicted income)
- Upcoming bills
- Recent expenses
- Savings controls you’ve set up with Digit
With Digit’s savings controls, you can instruct the app to transfer money back to your bank account if it goes below a minimum balance or to only save for you if your balance is above a certain amount.
The money saved for you in the Digit account will be available in the app and earn a savings bonus with an annual rate of 0.10%. This savings bonus is paid every three months. You can transfer money back to your linked bank account at any time.
Digit is ideal if you want an app that doesn’t require much time or effort on your part. All you do is link your checking account, add your goals, and Digit will handle the rest. It works in the background for you, analyzing your income and expenses to save the right amount.
No matter what your personal finance goal is, the hard part is often finding the extra cash to put toward it. Maybe you want to pay down your credit card debt, but you end up only having enough for minimum payments. By using Digit to save automatically, you take out the part that’s most difficult – – setting aside extra money instead of spending it.
There’s also a manual savings option if you want to add more on your own. Each savings goal includes an “Add Money” button. Select that, and you can transfer as much as you want from your bank account to the savings goal.
Offers multiple savings goals
By default, the Digit app will save towards a rainy day fund. You can select the option to add a savings goal at any time to create a new one. Digit will suggest a few popular goals, such as saving to have a cushion for emergencies, to travel, or to buy gifts. If none of the suggestions fit, you can create your own unique goal. The app also lets you add an amount and a target date for any savings goal, or you can leave them open-ended.
Savings are normally distributed evenly between all your savings goals. There are ways to change this, though. If you’ve set a target amount and date, then Digit will save the appropriate amount to complete the goal by that date. There’s also a boost option to prioritize certain goals. Note that you can’t boost goals with an end date since that end date determines the savings rate.
Customizable savings controls
Although this app works automatically, it offers the following spending controls:
- Safe Saving Level: Digit saves as long as your bank account balance is above the amount you set. If you set a minimum of $500, then your balance must be higher than that for Digit to save money.
- Overdraft Protection: Digit moves money back to your bank account if it goes below a minimum amount. If you put your overdraft protection at $100 and the balance dips to $50, Digit would move $50 back to your bank account (assuming you had at least $50 stored with Digit).
- Maximum Daily Save Amount: This allows you to put a limit on how much Digit saves per day.
- Pause Saving: You can pause saving either with Digit or for a specific savings goal. Pauses can last up to 60 days. Digit will notify you before a pause ends, and if you want, you can pause it again. Keep in mind that the monthly fee is still charged even if savings are paused.
Digit offers what it calls a savings bonus. It’s essentially interest on your savings. The annual bonus amount is 0.10%, but Digit pays it every three months based on your average daily balance over that time. For example, if you have an average daily balance of $5,000 for three months, Digit would pay you a bonus of 0.025% (the annual rate is 0.10%, so every three months, you receive a quarter of that). That would be $1.25.
As you can see, this is a very small bonus. On the bright side, you’re at least earning something on your savings.
Withdraw money at any time
When you want to use the money Digit has saved for you, simply transfer it back to your linked bank account. Transfers typically process within one to two business days. Digit also offers instant withdrawals for a fee of $0.99 each. These process within a few minutes.
What could be improved
There’s a monthly fee of $5 to use Digit. The first 30 days are free, so you can try it out and see if you like it. After that, Digit will automatically bill the $5 to your linked checking account.
Is Digit worth the monthly fee? That depends on how much it helps you save. If it puts aside $50 per month for you, then you’re paying 10% of that in fees, which isn’t good. According to Digit, its average user saves $2,200 per year. One year’s worth of Digit costs $60, meaning the typical user pays about 2.7% in fees.
Can only link one checking account
You can only connect a single checking account to Digit. The app will work fine if you have one primary bank account and you use your debit card for most of your spending. But there are plenty of consumers who don’t do that.
Some have multiple bank accounts that they use. Many pay for most of their purchases with credit cards instead of their debit cards. In fact, credit cards tend to be the more secure payment method. While Digit can still help you save in either of those situations, it won’t be able to analyze your spending habits as effectively.
This also means that you’re only able to transfer money from Digit to that one bank account. If you want to move your money to a different bank account, it needs to go through the account you’ve linked to Digit first.
Low interest rate on savings
The interest rate of 0.10% that Digit pays is better than the national average, but it falls far below what the best online savings accounts offer. You could earn more on your savings if you opened your own savings account and transferred money there. However, the advantage of Digit is that it does the saving for you. If you opened your own account, you’d need to follow through on saving consistently.
No automatic debt payments
Digit used to offer debt goals with an automatic payment feature. Every month, Digit would send the amount it saved as an extra payment to the creditor.
Unfortunately, debt goals and automatic debt payments are no longer available. Your only option is to create a custom savings goal for your debt, and then transfer the savings to your bank account when you want to make your debt payment. It works, but it’s a clunky, inconvenient process that makes Digit frustrating to use compared to other debt payoff apps.
Can’t transfer savings between goals
Another inconvenient aspect of Digit is that you can’t transfer money between savings goals or combine two goals. This seems like it’d be a basic feature, but it’s not an option.
Let’s say you want to move $100 from your rainy day fund to your travel fund. Digit doesn’t let you simply transfer the $100 between those savings goals. Instead, you would need to transfer the $100 from your rainy day fund to your linked bank account, and then manually add that $100 to the travel fund.
View more information: https://www.fool.com/the-ascent/personal-finance/digit-review/