Digit is trying to change the way consumers think about making budgeting decisions. In fact, some might say the financial app is trying to take the thinking out of it altogether.
With the use of algorithms that monitor and analyze a user’s spending habits, the Digit app is set up to aid consumers in setting aside money to both pay off nagging debts and set funds aside for savings goals. But there are costs involved, both monetary and in personal privacy.
Team Clark has decided to take a closer look at Digit to help you decide if this app could be right for your budgetary decisions. In this article we’ll explain exactly what Digit is, describe how it is supposed to work, talk about safety concerns and hopefully make you more comfortable with making a decision on whether you should try it out or not.
Table of Contents
- What Is Digit?
- How Much Does Digit Cost?
- How Does Digit Work?
- Is Digit Safe to Use?
- Digit vs. Qapital: Comparing Rival Services
- Final Thoughts
What Is Digit?
Digit is a United States-based financial savings app available on the Android, iOS and web platforms.
It is designed to make saving money and setting budgets a passive experience by automatically pulling money from your checking account and setting it aside for designated savings goals.
The app is compatible with more than 2,500 banks and credit unions. You connect an eligible checking account to the service and the automated analysis begins. Based on your income, spending habits and savings targets, the app determines the proper amount of money to set aside each day to reach your goal.
“Our sophisticated algorithms learn how you spend, so you don’t have to change your lifestyle. Digit knows when to take a break and when it’s cool to save,” the company says.
We’ll explain exactly how that works later in the article.
How Much Does Digit Cost?
Digit offers new users a free 30-day trial, but the cost is $5 per month after that.
This charge is taken from the checking account that you connect to the service and will be drawn even if you are not actively using it. You must go into the Digit app or website and cancel your service to avoid continuing the monthly charge.
Digit has a referral program that will award you $5 for every person who signs up for the service using your unique referral link, so you may be able to defray some costs that way.
It’s also worth noting that there is no account minimum for Digit, so you don’t have to worry about maintaining a certain amount of savings to avoid fees.
How Does Digit Work?
If you’re considering signing up for Digit, let’s dig a little deeper into what the $5 monthly fee will get you.
An Algorithm That Monitors Spending
According to Digit, there are four major driving forces to its algorithms that determine how much money it can safely pull from your checking account:
- Checking account balance
- Upcoming income (paychecks or predicted irregular income)
- Upcoming bills
- Recent spending
Once it has determined predictable patterns in your deposit and spending habits, it is able to forecast an amount of money that you should be able to safely set aside for savings goals.
You Set Financial Goals and Digit Handles the Savings
So, we’ve determined that Digit’s algorithm is designed to determine how much money can be set aside, but you’re probably wondering what that looks like for the user.
Digit allows you to pick and choose between savings goals. You can have multiple savings goals at once. Some of those are structured payback options, including setting aside money for paying off debts like:
- Student loan debt reduction: Users can make additional payments on student loan debt through Digit. You can set up extra payments to go to major student loan lenders like Navient, Great Lakes, Nelnet, Fedloans, American Education Services and more.
- Credit card debt reduction: You can set up automated payments to credit card companies with money that is saved by Digit. The app claims that “the average Digit customer using this feature is on track to pay off their debt 11 months faster than before.”
This app isn’t exclusively about getting rid of debt, though. It also can be useful for those who are planning ahead for purchases. You set the amount and the date, and the app will help save money for things like:
- Vacation funds
- Tuition funds
- Rainy day funds
- Holiday gift buying
You Are Kept in the Loop Via Automated Messaging
Digit has an automated text messaging system that will alert you to things like your checking account balance for the day and its plans to pull money from the account to apply towards your various savings goals.
You are able to interact with this messaging system to make appropriate adjustments. If you have your settings properly aligned, there should be very little in the way of surprises when it comes to debits from Digit.
If you are worried about dipping below a certain balance in your banking account, you can set a minimum balance amount that Digit will use to determine if it should pull money or not. For example, if you set a minimum of $500 for your checking account, the app is not going to pull money that would drop your balance below that threshold.
Once a savings goal is met, the scheduled debits for that goal will cease. Likewise, if you cancel a savings goal, the money that was designated for that goal will be returned to your checking account.
Is Digit Safe to Use?
The idea of a third-party having access to your spending habits can be unsettling, but Digit takes measures to ensure user safety.
Security of Funds and Personal Information
Your personal information is “anonymized, encrypted, and securely stored” through the use of Plaid. This includes 256-bit encryption for data transmitted on the app and site, as well as asymmetric cryptography architecture for sensitive information. Digit says that it does not share personal information with third parties.
Once Digit has your money, that is protected as well. Per the app’s website, your funds are held in an FDIC insured account:
“The funds in your Digit Account are held at FDIC insured banks for your benefit and are insured up to a balance of $250,000.”
And what happens if Digit goes out of business? The app offers the following explanation:
“Digit is considered what is called a closed-loop system, meaning the funds can only go to and from the checking account where they originated. In the unlikely event Digit were to go out of business, any funds remaining in your Digit account would be automatically transferred back to your checking account.”
Access to Your Money
While Digit offers overdraft prevention and fee protection, you may be worried about your bank account balance should you need immediate access to funds to cover an unexpected expense. While Digit does promise a quick and easy return of funds to your checking account at any time, that transaction does not happen in real time unless you are willing to pay a $1 fee for an instant transfer.
It is something you can plan in advance, though. Digit provides a handy chart to better understand the timing of transfers based on the financial institution in use.
Depending on the day and time that you request a Digit withdrawal, as well as the cutoff time for your bank or credit union to process the transaction, it could take up to three days to receive the money back in your checking account. It appears that Chase and Wells Fargo accounts are eligible for free same day transactions, provided they are requested prior to 7 p.m. EST.
Digit vs. Qapital and Acorns: Understanding the Differences
Digit isn’t the only automated savings app on the market. It has competition from services like Qapital and Acorns. There are some important distinctions to make between these services, because they are actually offering different services. There’s a chance that one may be better than the others for your personal financial situation, and there’s also a possibility that you could be a fit for more than one of these services.
How Qapital is Different Than Digit
Qapital allows for you to set up “rules” for the savings process, which can be as simple as setting a set percentage of your money to be pulled from the checking account at certain times. Digit, on the other hand, relies on a more automated process for determining the optimal amount to set aside for savings.
With things like a round up rule that take the “extra change” from your purchases and put them into savings, Qapital scores points for customization. Digit, on the other hand, appears to be more focused on the convenience of automation. That’s probably the best way to differentiate two otherwise-similar services.
How Acorns is Different Than Digit
The biggest difference between Acorns and Digit is that Acorns is actually set up to be an investment account. While both will draw money out of your checking account for the purposes of automated savings, Acorns is going to do so with the idea of investing the money in exchange traded funds (or ETFs).
This is done with hopes of a better return on the money than an average savings account. Digit, on the other hand, is geared more towards paying off debts or meeting savings goals with your automated savings.
Still on the fence about Digit? Let’s take a look at some pros and cons from what we’ve learned about the app:
Digit: Pros and Cons
|Saves money automatically
|Third-party access to financial information
|Helps pay off debts efficiently
|Extra steps required to access your money
|Overdraft protection safeguards
|Monthly $5 fee for service
Bottom Line: Digit’s target audience is consumers who are looking for a passive way to save money. For some, the $5 monthly fee is a price well worth reaching financial goals with minimal effort. For others who spend time frequently managing their personal finances, the service may seem unnecessary. If you are considering using the app, be sure to take advantage of the 30-day free trial before committing for the long term.
Do you have experience with the Digit app? We’d love to hear what you think about it in the comments below!