Saving money, especially with a mediocre salary, is hard. Have a major illness in the family? There go the savings. Want to take a big vacation? Bye bye, cash. In the U.S., the median retirement account balance is $3,000 for working-age households–hardly enough to survive even a few months in a major city.
Maybe it would be easier if someone started covertly stealing small amounts of money from your savings account–amounts so small that you wouldn’t even know they were gone–and putting the cash away for the future. Think of Digit, a startup that uses an algorithm to take money from users’ savings and holds it in a separate account, as that benevolent thief.
Ethan Bloch founded the company after Intuit bought his previous startup, a social media marketing service called Flowtown. “I wanted to build a tool that would help someone have financial stability, but also drive the amount of time it takes to have financial stability as close to zero minutes per year as possible,” he says.
Digit’s premise is simple: Log into your bank account through the startup’s website, and wait for its algorithms to work their magic, setting aside cash (between $1 and $150, with an average transfer of $25) periodically in a separate FDIC insured account. Savings updates are available on Digit’s website; they can also be accessed through text message commands.
The amount of money that Digit (currently in beta testing) takes is entirely dependent on a user’s finances. “One of [the algorithm’s] first questions is, based on the way this person spends money, is the current amount of money in their checking account a high account or low amount? It asks questions like, “When’s the next time this person gets paid? Are there any bills coming? How much have they spent over the last seven days? It tries to find an amount that it doesn’t feel you’ll miss,” says Bloch.
I signed up to see how Digit’s algorithm would work on my bank account. I am a saver, so I figured that Digit might try to take a lot of money from me. It didn’t–at least, not yet. The day after signing up, Digit set aside $6.50. That number will go up or down depending on my spending habits over time. At the moment, however, users can’t set their own limit for how much money the algorithm takes out.
As someone who already uses online payment apps like Venmo, I wasn’t too skeptical about handing over information about my bank account to Digit. But I suspect there’s a generational divide in that willingness to trust an unknown company with highly personal information. Bloch acknowledges as much. “I’m almost certain there’s a large number of people who just wouldn’t be comfortable with what Digit does today,” he says. “This is a product built for our generation, between ages 22 and 35. I built a product for myself.”
Digit never actually sees any bank account information; as soon as it’s typed in, it goes directly to Wells Fargo, the bank that holds customer funds.
For now, Digit is free. The company makes its money by taking the interest from customer savings–another potential hurdle for skeptics to overcome. But this service isn’t necessarily designed for people who have enough money to get significant returns on interest. “We will offer opportunities to grow your savings in the future,” says Bloch.
Want to try Digit before it goes live to the public? Click here (note: this will only work for the first 50 sign-ups).