As a kid, I had a wooden piggy bank and loved dropping any spare change into it (and later sorting it with the plastic coin sorter on my mom’s desk). I have found the digital equivalent in Digit.
I joined Digit on January 30 after reading this post on Lifehacker. It has a great premise: link it to your bank account and it applies its special algorithm to find untapped savings. As a personal finance hobbyist, I was happy to take the bait.
In the first month, I saved over $100 with Digit and have since saved about $650. I recommend it, as long as you understand a few things about its operating model (or what I’ve gleaned from Google searches).
First, Digit holds your “savings” in an interest-free account. I’ll come back to this because it’s a key to the Digit business. But for the consumer, that means my “savings” are essentially stuffed under a digital mattress until I’ve moved the money out of my Digit account and into an interest-bearing savings account or investment. The catch to this is that so far, Digit only links to one account, meaning to “save” the $100 Digit pulled aside in month 1, I had to transfer that money back into my checking account and then into my savings account. I’m fine with this as an experiment, but this would get really annoying over time.
Second, Digit operates primarily through SMS. This feels like a novelty these days, and the simplicity makes it so enjoyable to use. Every day I get a text with my checking account balance and then I get texts when Digit makes a withdraw. I also got some gif action when I hit $50 and $100 in my account. All in all, a very pleasant and simple user experience.
I was hooked after using it just a few days. I’ve noticed the amounts drawn taper off – sometimes to <$1 – as my checking account lowers with bills, rent, etc. It hasn’t landed me any overdraft fees and even if it did, if offers a guarantee to repay them.
And now Digit: the startup. I am intrigued by this company. The founder, Ethan Bloch, has started a few other companies and the last one, Flowtown, was acquired by Demandforce. Why is this company so interested in helping little ol’ me save some bucks? Which brings us back to the no-interest point at the top. Your miniscule interest on your checking interest (mine is 0.05%) is Digit’s gain. When I defer my money to a Digit account instead of my checking, I forfeit only pennies in interest earnings, if that. This becomes a win for Digit if they put everybody’s money together to collect the interest or invest or do whatever they want to do.
For now, I’ve put a reminder on my calendar to transfer my Digit account back into my checking account the first of each month so that I actually put the money into an interest-bearing savings account. I’ve automated a lot of savings already – I have a set amount pull out of my checking account the day after my paycheck hits each pay cycle. It feels good to use Digit because I feel like it’s a little bonus, finding incremental savings where I thought there was none. But if it ends up being a similar amount each month, I’ll just up my savings rate and deactivate my Digit account.
If you have trouble automating savings, Digit could be for you. I’m enjoying it so far.