Betterment vs Acorns: Which Should You Choose?

29 Aug

5:54

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Miranda Marquit

Miranda Marquit has been a financial journalist for more than 12 years and is a nationally-recognized financial expert specializing in career, investing, financial planning, and small business topics. She has contributed to, and been quoted by, numerous national and local media outlets, including Forbes, NPR, CNBC, FOX Business, and The Wall Street Journal. She regularly appears on TV, radio, and podcasts to speak about financial topics, as well as speaks at conferences and workshops. Miranda lives in Idaho, where she is working on her MBA — and where she and her son can take full advantage of the outdoor lifestyle.

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Miranda Marquit

If you’re looking for a great way to start investing with a low barrier to entry, robo-advisors Betterment and Acorns can help. Betterment allows you to set multiple investing goals and offers tax-advantaged investing, while Acorns offers a clever automatic investing function that makes building your portfolio very easy.

Betterment is better for those looking for tax-efficient investing as well as the ability to use accounts for multiple goals. Acorns is ideal for those who have small amounts of money and want to start investing. Here’s what you need to know about Betterment versus Acorns as you make the best decision about where to put your money to work in the market.

Betterment vs. Acorns: Feature comparison

Betterment vs. Acorns: Fees & account minimums

Neither Betterment or Acorns require an account minimum to open. You can open an account and start investing without worrying about meeting a threshold. However, with Acorns your money won’t be invested until your account balance reaches $5.

Like all brokers, both Betterment and Acorns charge fees. Betterment charges an annual fee of 0.25% of your account balance for portfolios of up to $100,000. After that, you pay an annual fee of 0.40% — account balances above this threshold get you access to a team of financial advisors.

Acorns, on the other hand, charges a flat monthly fee, depending on the type of account you have:

Acorns Core: $1 a month for an investing account and spending roundups.
Acorns Core + Acorns Later: $2 per month for an investing account, spending roundups, plus an individual retirement account (IRA) account to save for retirement.
Acorns Core + Acorns Later + Acorns Spend: $3 a month a checking account product and a debit card, in addition to the investing account, spending roundups, and the IRA account.

Once your portfolio with Acorns reaches $1 million, you can contact customer support for next steps.

When you divide the fee annually, Acorns can seem more expensive than Betterment, at least for smaller balances. For example, if you have $2,000 in your account, and you pay $1 per month ($12 per year), that’s like paying an annual fee of 0.60% of your balance. The bigger your balance, the more you benefit from the flat fee. With $200,000 in a Betterment account, you’re paying $800 a year, but that same amount with the Acorns flat fee would still be $12.

Because both companies rely on mixes of exchange traded funds (ETFs) for their portfolios, you also need to be aware of expense ratios. These are the fees charged by the company that maintains each ETF; the fee is deducted from your fund balance, rather than being charged separately. Expense ratios at Betterment are between 0.06% and 0.17%, while at Acorns they range from 0.03% to 0.15%. What you end up paying depends on your portfolio allocation and the funds used.

Betterment vs. Acorns: Special features

Both Betterment and Acorns are robo-advisors that create investment portfolios tailored to your investing goals and your risk tolerance.

Both brokers offer various IRA choices, including traditional IRAs, Roth IRAs and simplified employee pension (SEP) IRAs. However, Acorns will automatically choose an IRA type for you based on your needs, while Betterment offers more control over what type of IRA you choose.

In addition to offering investment choices, Betterment offers an FDIC-insured high-yield savings product. You can also be added to the waitlist for Betterment’s recently-announced checking product. Acorns doesn’t offer a high-yield savings account, but it does offer Acorns Spend, which is an FDIC-insured checking product that comes with a debit card and reimbursed ATM fees.

Betterment offers more flexibility in saving for individual goals, while Acorns offers the ability to earn extra cash back for investing when you shop with different partners. Betterment does have a better tax-coordinated portfolio which spreads your investments over your various accounts, based on strategies to minimize your overall taxes.

Acorns provides you the ability to round up your purchases and invest the difference in addition to setting an automatic investment, so it’s easier to get a small boost each time you use a connected account to make purchases.

Betterment advantages

When considering Betterment versus Acorns, here are some of the advantages that come with opening a Betterment account.

Set multiple goals: Betterment allows you to set aside money in different accounts with varying purposes. You can set different risk levels depending on when you need the money. So, if you want to set aside money for a vacation next year, as well as save up for a down payment on a house in three years, you can create different accounts for the money — and have different asset allocations based on those goals.
Use the savings account to boost your cash returns: If you’re looking for a safe product to grow your cash reserves, at the time of publishing the savings account offers up to 2.39% APY (note that this APY is available when you join the waitlist for the forthcoming checking account product; if you stick with the savings account only, your APY is 2.14%). Your savings are FDIC-insured and this goal coordinates seamlessly with your investing accounts at Betterment.
Donate to charity: If you’re interested in donating appreciated shares to a good cause, Betterment can make it happen. Betterment will even figure out which investments are the best to donate based on your tax impact.
Tax-efficient investing: Betterment makes decisions about your portfolio, and where to put investments, based on long-term tax efficiency. High-tax investments, for example, will be kept in your IRA to reduce their long-term impact, while low-tax investments are put in taxable investment accounts. Your entire portfolio is considered with Betterment.
Talk to a human advisor: Once your portfolio reaches $100,000, you have unlimited access to a human advisor who can talk you through issues like estate planning and tax management. Betterment also offers access to human advisors and planning packages for those with smaller portfolios, but you have to pay a flat annual fee starting at $199.

Acorns advantages

If you’re just looking for a robo-advisor to help you start investing with small amounts of money, there are some advantages to choosing Acorns versus Betterment.

Micro-investing with roundups: Connect your bank accounts and credit cards, and Acorns will round your purchases up to the nearest dollar, and then invest the difference. You can also increase the amounts invested by turning on a feature that allows you to multiply your roundups. For example, you could double your roundups. So, if you spent $2.50 on a purchase, rather than getting $0.50 for investment, the roundup would be doubled to $1.00.
Use Found Money to invest even more: Acorns has partnerships with a variety of merchants. When you shop through the Acorns website, you can receive cashback rewards from companies like Orbitz, Nike, Choice Hotels, Rover and more for your investments. You’ll get the money added to your investment account and it will be put to work for you.
Acorns Spend provides access to checking: You can use Acorns Spend as a checking account with a fee-free debit card. Betterment will be rolling out a debit product soon, but Acorns is ahead of the game. You can use your spending on the Acorns debit card to boost the amount of money you get back for investing.
Pay less in fees for larger portfolios: With a flat monthly fee, you have the potential to save when you have an Acorns account. Once you reach about $5,000 in your Acorns account, your annual management fee is less than what you’d pay with Betterment. This trend continues until your portfolio reaches $1 million and you contact Acorns for different arrangements.
Fee waived for college students: If you’re a college student, your Acorns Core account fee of $1 per month is waived. So, for students just starting out, it’s possible to get a solid start before you start paying fees.

Betterment vs. Acorns: Which is best for you?

Betterment offers a little more freedom and flexibility by allowing you to set up multiple accounts for different goals and allowing you to choose your own IRA option. Additionally, Betterment has the additional option to access financial advisors when you want someone to talk to. If you want to set it and forget it with goals and tax-efficient investing, Betterment can be a good choice.

On the other hand, Acorns can be a good choice for beginners who are less worried about fees and who just want to get started with small change. The option to use roundups and earn Found Money through partners can help those who want to invest but aren’t sure they can commit a set amount of money each month.

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