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Should You Replace Your Savings Account With Investment Apps?

Nina Rodríguez

Staff Writer

5 min. read

There are many ways to make your money work for you. When it comes to saving, it’s good to think about each move you make  as an investment for your future. A recent Charles Schwab study found 26% of people who have a 401(k) said they would “rather live well now than save for an uncertain future.” 

The study also demonstrated 401(k) owners were more likely to use a savings account to prepare for retirement than other types of investment accounts. After that, investing in an IRA was the next most likely way 401(k) owners said they were preparing for retirement.

One of those other types of investment accounts –  online investment apps – have become more and more popular in recent years. “Investment apps are like the cool older sibling. They’re trendy, and clearly, have attracted a lot of popularity,” says Dan Trumbower, senior wealth adviser at Halpern Financial.

We asked some other experts about their thoughts on these investment apps, and whether they might be worth incorporating into your savings plan, or even replacing your savings account. Here’s what they had to say.

Investment Apps or Savings Account?

Edith Muthoni, an investment coach and editor in chief at Learnbonds.com, says she has witnessed and even been a part of the trend where people are abandoning savings accounts for investment apps. Muthoni says she abandoned savings accounts for investment apps are the upside of potential returns, and how easy the apps are to use. 

But investment apps and savings accounts should be treated differently, Trumbower says, because “savings accounts are for money that will be needed soon and should not be put at risk. An investment account is taking more risk that the account may lose money and the investment time horizon can be much, much longer.” 

Experts such as Muthoni don’t think investment apps can fully replace savings apps, at least not as they exist today, “but I am certain even banks can now appreciate the significant dent these will have on the bank savings accounts.” For Trumbower, “investment apps can also lead impressionable investors down the wrong path without some guidance, before ever saving a dollar in an emergency fund. It’s really easy to open an account with these apps, easier than going through the research process.” 

When considering whether to divert some of your savings to an investment app, Kate Crowhurst, financial literacy educator at Money Bites, says “the key difference between investing and saving is that with a savings account, your capital is more secure. The benefit of an investment account is that you can potentially make money on top of the money you initially invest and at a greater rate than your savings account.” 

Morgan Taylor, finance expert for LetMeBank adds that while “these apps have options for automatic withdrawals from checking accounts, small amounts that are generally equivalent to the change from purchases, the cons are that it is investing. Even safe investing isn’t a guarantee on a return, so this money might simply disappear, even though you’re saving it.”

This is why Todd Christensen, education manager on Money Fit, recommends “using an investment app while simultaneously using a savings builder app and program that rounds up and automatically transfers money to a savings account.” 

Whatever unique balance of savings and investments makes sense for different people, experts agree on the benefit of an overall approach that includes both, so long as people are being mindful of the pros and cons of both.

Popular Investment Apps

As with any investment, experts recommend you set goals and track the progress. If you feel ready and committed to start using investment apps, try to start by putting just small amounts into them, as you begin to understand them.

Taylor says you should “link only one bank account, and leave it alone. Don’t check your investments regularly, because every time you lose a penny, you’ll be worried. Instead, let them do their job, namely, hands-off investing for you. Check once a month to make sure nothing crazy is going on and keep an eye on your checking account, too.”

Some of the most popular investment apps experts referenced include:

  • Robinhood: A real-time commission-free platform for buying and selling stocks and exchange-traded funds (ETFs) that go into a taxable investing account. You can schedule recurring deposits if you want to but bear in mind that the ease of trading could make you rush your decisions more than you should.
  • Acorns: Usually recommended for students since they offer it for free, this app links with your credit and debit card and automatically invests your spare change by rounding it up to the next dollar on every purchase. Based on your risk profile, it offers to invest in taxable investment accounts and IRAs.
  • Stash: Recommended for beginners, this app allows you to invest in taxable investment accounts or an IRA, starting with as little as $5. It offers a variety of plans, depending on what the users are willing to invest and what they want to do with that money. The Stash app allows users to unite investing, banking, and savings, and learn while using it.
  • M1 Finance: Recommended for those who like the idea of automated investment with automatization based on the information you provide. But it also allows you to choose stocks and ETFs. You don’t need to transfer any money into your account to start, but you can set up recurring deposits to invest.
  • Ellevest: Designed specifically for women, Ellevest allows you to invest in taxable accounts and IRAs, including traditional, Roth and simplified employee pension (SEP). This investing tool uses algorithms tailored to variations such as gender (yes, if you are a man you can use it as well) and salary. This app offers financial advice and direct management for its users.

Pro Tips to Remember

  • Set goals
  • Check the features and even the hidden fees these investment apps might charge you
  • Do some research before playing around with your money
  • Try to read more about investment so you can understand best practices and the risks of investing
  • Use news alerts to follow companies you invest in
  • Get yourself an adviser that can help you make better decisions

You can also learn more about commission-free trading here. If you want to stay on top of savvy ways of how to invest your money for the future, follow us on Facebook and/or Twitter.

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