If you’ve logged into your online bank account recently, you might have seen something called round-up savings. What are they and how do they work? How do round-up savings differ from other types of saving plans, and are they the right fit for you?
Just like saving your spare change in a jar on your counter, round-up savings are a feature that rounds up your purchases to deposit savings in a separate account. A modern alternative to this classic spare change savings method, round-ups can help you save extra funds without thinking about it. In this guide, we’ll explore the methodology behind round-up savings to determine if they’re the right fit for your goals.
How Does Round-Up Savings Work?
To begin, let’s talk about how round-up savings even work. This is a relatively new concept to online banking, even though you’re likely already familiar with the idea itself. Just like those jars you use to save extra spare change, the same idea applies. No matter how small, this spare change adds up over time. If you’ve ever transferred a pile of change into cash, you might be surprised by just how quickly it adds up.
With round-up savings, this is done automatically. For example, you might spend $5.60 on a coffee from your favourite shop. If you were to pay with cash, that would leave you with 40 cents in change. Even though you’re not paying with cash, your bank ‘rounds-up’ this transaction to $6 even and deposits the 40 cents into a savings or investment account.
This might either happen right away or over time, with larger sums being added at once vs. with each transaction. There are even standalone round-up apps that do this for you, but it’s starting to become more common to be a free service within existing banking apps. However, some of these standalone apps charge a monthly fee, so be aware of this before you sign up.
Why Use Round-Up Savings?
Now that you know what round-up savings are, why are they helpful? With so many different types of debt payoff and savings to choose from, what makes this special? While it’s true a few dollars in spare change won’t make a big difference at first, it truly adds up over time.
Even if you’re only able to put aside $10 a week in extra savings, that adds up to $520 over the course of an entire year. That’s enough to build a basic emergency fund. While an intentional, strategic savings strategy is always recommended, why not boost it any way you can? When you save extra funds into a savings or investment account, you also earn interest. This compound interest really adds up, even when it starts small.
With that in mind, here are the main benefits of round-up savings:
- Accessible: Most modern online banks offer round-up savings as a free add-on. It doesn’t cost you anything or take any time, so why not use it?
- Rewards: You’re already making everyday purchases. Why not make them worth your while? Paying yourself for each transaction, no matter how small, ensures that saving is a priority.
- Automated: For those who struggle to remember to save regularly, automated savings plans work well. Even if you don’t always remember to save within your existing budget, you can count on this automation working for you.
The only time you shouldn’t use round-up savings is if you’re concerned about fees. In the case of transaction fees, you might want to look for an alternative bank or provider. However, if the fee is small, it might still be worthwhile to use this savings tool long-term.
What Are the Best Round-Up Savings Apps?
Finally, what are the best round-up savings apps? If you’re ready to try this for yourself, there are a lot of options to choose from. While your bank might be the easiest option, this isn’t always available depending on your institution. In the meantime, here are some recommendations for automating your round-up savings:
- Acorns: The most well-known app for round-up savings is Acorns. Launched in 2014, it’s the original round-up idea that invests your spare change into a diversified portfolio of low-cost index ETFs.
- Raiz: Similar to Acorns, Raiz also uses round-ups to invest in ETFs and rewards. However, using the investing feature costs extra.
- Sipora: Helping people save for things vs. using debt, Sipora is Australia’s first round-up shopping app. By rounding up daily purchases, put money away for things you really want—like a special holiday, gift, or treat.
Similarly, banks like NAB and Commonwealth also have savings tools like the round-up jar and savings challenge. If your bank doesn’t yet have the round-up savings feature, consider requesting it on social media and encouraging others to do the same.
Do you need help automating your savings goals? You don’t have to take the next steps alone. Contact a member of the Debt Busters team on 1300 368 322 for a personalised plan of action. Your financial future is in your hands. Now is the time to take control.