Robinhood and Acorns are two apps that let you start investing easily without as much money as you might think. But what are the pros and cons of each one? Is Acorns better than Robinhood, or vice versa? Are these apps safe to use? And, most importantly, which one is best for you? Our Robinhood vs. Acorns comparison will answer all these questions and more.
Traditional brokers often have high account minimums and can feel overwhelming to new investors. Luckily, there are now several apps that let you invest automatically with minimal fees and smaller sums of money.
Two competitors, Robinhood and Acorns, are among the most well-known of these companies. You can read more about each of them individually in our Robinhood review and our Acorns review. But today, we’re focusing on how they stack up against another.
What Is Robinhood?
Robinhood is an online stock broker that prides itself on offering commission-free trading of stocks, ETF’s, cryptocurrencies, and stock options, all through an easy-to-use mobile app.
Robinhood’s lack of account minimums or trade-based fees combined with their accessible and user-friendly mobile app makes Robinhood a solid choice for the new, casual investor who wants to engage in some DIY experimentation in the stock market or invest in cryptocurrency.
The ability to purchase fractional shares also provides a cheap introduction to buying and selling stocks and removes many barriers to entry that often keep out prospective investors.
What Is Acorns?
Acorns is an investing app that puts your spare change to work. By rounding up everyday purchases and investing the change, Acorns provides a simple and easy introduction on how to invest.
With Acorns, the entire process is automated, meaning you won’t have to worry about saving or constantly tracking your investments.
This makes Acorns an attractive product for anyone who struggles to save money. Acorns is also great if you simply want to be less involved in your investments.
Robinhood Vs. Acorns – A Broad Overview
|Fees||$0||$1-3 / month|
|Account Minimum||$0||$0 |
$5 to start investing
|IRA & 401(k) Accounts||None||Traditional & Roth IRAs for $3/month|
|Available Investment Types||• Stocks|
|Sign Up Now||Sign Up Now|
Robinhood Vs. Acorns – Pros And Cons
Both Robinhood and Acorns have areas in which they excel. Let’s talk about where each can outperform the other to get a feel for their relative strengths and weaknesses.
Where Robinhood Bests Acorns
Robinhood’s overall advantage over Acorns stems from the extra flexibility in how you invest. With Robinhood, you can invest in cryptocurrencies, stocks, ETFs, options, and fractional shares.
This is valuable if you want more freedom to customize your portfolio with a wide range of investments.
Robinhood also lets you invest without monthly fees, unlike Acorns’ $1-3 monthly management fee. This may not seem like much at first, but it adds up fast over time.
There is also no minimum to start investing with Robinhood, so it’s even easier to get started.
Where Acorns Bests Robinhood
Acorns’ big upside over Robinhood is in the minimal maintenance required and the guaranteed diversification.
Acorns automatically rounds up your purchases and invests the difference. This helps you get into the habit of saving a little extra money without making any big changes.
Their cash-back program also allows you to get extra money in your account any time you make purchases at a partnered store.
Robinhood Vs. Acorns – How Do They Make Money?
Here at TFT, we think you should understand how companies, especially those that claim to offer free services, earn money.
How Robinhood Earns Its Money
Robinhood earns its revenue in two main ways: paid premium accounts and a process known as payment for order flow.
Robinhood’s premium accounts are a simple enough business model. For an extra $5/month ($60/year), you’ll gain access to additional research and market data, make larger instant deposits, and buy stocks on margin.
While the extra information is useful to research stocks, the main selling point is the ability to buy on margin.
Simply put, buying “on margin” equates to borrowing money in order to buy more shares of a stock than you otherwise could. Think of it as taking out a loan.
If the stock performs well, you’re able to pay off the borrowed money plus interest and earn more than you otherwise might have.
However, if the stock performs poorly, you can end up in a problematic situation as you’ll still owe borrowed money. This is why investing with margins can be a risky business.
Payment For Order Flow
The more insidious aspect of Robinhood’s business model is the payment for order flow. Whenever you’re buying a stock, you buy it from somewhere or someone else.
A broker acts as a middleman, matching potential buyers with sellers and taking a small portion of the profits in exchange.
For example, a broker might buy stock from a seller at $100.00 per share and then sell that same stock to the buyer for $100.05 per share, collecting 5 cents per share in profits (often called the “spread”).
While this isn’t an uncommon industry practice, Robinhood’s spread is reportedly much higher than many of its competitors.
This means Robinhood matches you with sellers who are charging more than the market price for the same good. Put differently, the price you’re paying for individual shares purchased through Robinhood is likely a bit higher than what you would pay with another broker.
When choosing between a broker that earns its money through commission vs. payment for order flow, if you only plan to purchase a small number of shares, it’s generally still cheaper to pay a couple of extra cents per share than it would be with a $4.95 commission fee on the total purchase.
So long as you don’t plan on buying hundreds of shares at a time, Robinhood’s business model isn’t too bad.
How Acorns Earns Its Money
Acorns earns its revenue in two main ways: subscription costs and transfer fees.
Acorns’ Subscription Costs
A standard Lite account costs $1 / month and lets you use the round-up and Found Money features in a personal savings account. The more expensive Personal account costs $3 / month and lets you store your funds in an IRA or checking account.
The checking account also comes with a debit card.
While $1 – $3 in monthly fees doesn’t sound like a lot, it’s still a lot higher than many other services like Betterment or M1 Finance. This is because most other services charge as a percentage of your account’s total value rather than a flat rate.
Let’s use Betterment as an example to show how Acorns’ costs are, in reality, much higher for people with less money in their account. Betterment charges 0.25% annually, while Acorns costs either $12 or $36 each year, depending on the service.
If your account has $1,000, Acorns will end up costing 1.2% or 3.6% of the total account value, compared to Betterment’s 0.25%. Put into dollars, this is the difference between paying $2.50 a year vs. $12 or $36. And this difference only worsens as you use smaller amounts.
That said, if your account has at least $5,000, $12 a year in charges works out to 0.24% of the total account value. So, if you’re using thousands of dollars, it may be cheaper to use Acorns (assuming you don’t care about some of the other services offered by different brokerages).
The one fee to watch out for with Acorns is the cost of moving your investments to another broker. You’ll pay $50 per ETF, and you may also have more than one ETF to move.
You can avoid this if you first sell-off (liquidate) your investments and then transfer the money to your checking account. But before you run and start selling all of your current investments, speak to a tax professional to understand the tax consequences of doing so.
Robinhood Vs. Acorns – Available Investments
Overall, Robinhood provides more flexibility in available investments, while Acorns provides options that are all less hands-on but diversified.
Robinhood’s Investment Options
Robinhood lets you trade stocks, ETFs, options, cryptocurrencies, and fractional shares.
As far as cryptocurrencies go, Robinhood currently lets you invest in the following ones: Bitcoin, Omise, Lisk, Dash, Monero, Zcash, NEO, Steller, Ethereum, Qtum, Ripple, Dogecoin, and Litecoin, all without fees.
This can be a very helpful feature if buying and trading cryptocurrency is your preferred investment method. There aren’t many other options on the market that provide free cryptocurrency trading.
However, if you look at Robinhood vs Webull, you may prefer Webull’s investment options.
Acorns’ Investment Options
Acorns, on the other hand, offers five pre-built portfolio options. All of them invest in ETFs, which are basically large collections of different stocks or bonds.
This means you’ll have a diversified portfolio regardless of which option you choose.
If you’re interested in learning more, there’s a simple way to set yourself up for success with investing: The 3 Fund Portfolio.
Acorns’ portfolios are broken down into five levels of risk and reward. The difference between each of these portfolios comes down to their asset allocation. The biggest shift as you get towards more aggressive portfolios is the ratio of stocks to bonds.
Here’s a breakdown of the exact percentages of stocks and bonds for each pre-built portfolio:
- Conservative = 100% bonds / 0% stocks
- Moderately Conservative = 60% bonds / 40% stocks
- Moderate = 40% bonds / 60% stocks
- Moderately Aggressive = 20% bonds / 80% stocks
- Aggressive = 0% bonds / 100% stocks
In general, most people think of stocks as being riskier and bonds as less risky. A portfolio that is 100% stocks is considered extremely risky since stocks have higher volatility, while the opposite is true for a 100% bond portfolio.
On the flip side, a portfolio with a greater amount invested in stocks can make more money than one with more bonds.
Acorns’ portfolios mirror this idea, as the conservative ones carry a greater amount of bonds (less risk, lower reward), and the aggressive portfolios contain more stocks (more risk, higher reward).
If you’d rather get a professional’s help figuring out these differences, SmartAsset can be a good way to find a financial planner.
Robinhood Vs. Acorns – Account Options
Assuming you’re willing to pay the $3 monthly fee, Acorns edges out Robinhood when it comes to account options.
Acorns lets you keep your investments in a personal savings account, an IRA, or an online checking account. Acorns offers both Traditional and Roth IRAs, which are useful if you want to save for the long-term.
By using an IRA, you can grow your money faster and with fewer losses to taxation.
Here we see Robinhood start to reveal some of its limitations. The only type of account offered is a standard brokerage account. This does not provide any tax benefits, unlike an IRA or 401(k) account.
Are Robinhood and Acorns Safe?
The short answer is yes, both Robinhood and Acorns are safe. Robinhood and Acorns both have SIPC insurance, which covers up to $500,000 in securities or $250,000 in cash.
While a security breach is always possible with any company, Robinhood and Acorns encrypt your personal data and do not store it locally or sell it to other third parties. This means connecting either app to your account involves minimal risk.
Should You Use Robinhood Or Acorns?
Ultimately, both Robinhood and Acorns provide useful services at a much lower cost than most alternatives. They’re both solid choices for building long-term financial habits, but which one is best for you depends on what you want.
Who Robinhood Is Best For
Though it may lack the same available information or investment options that other brokerage services offer, Robinhood’s commitment to commission-free trades, no minimum deposits, and fractional shares, all of which are put into one user-friendly app, makes them a good choice for someone looking for a low-commitment introduction to investing in the stock market.
As a low-cost, introductory tool to get started in the stock market, Robinhood is a solid option, albeit one that the more serious or long-term investors may find themselves outgrowing in favor of more feature-rich alternatives.
If you want a low stakes way to get involved in the stock market and learn more about how to invest, consider signing up for Robinhood.
Who Acorns Is Best For
Acorns works great as a very basic introduction to saving and investing. As a tool to help you build healthy financial habits and learn to save regularly, Acorns is a good way to go.
Between its round-up feature and the availability of educational articles on the app, you can cheaply and easily learn the basics of how to invest.
But ultimately, if you’re going to invest with enough money to make Acorns’ fees worthwhile, you could find other brokerages that provide more services for a similar cost.
If you’re looking for other ways to build good budget habits, you should also look into EveryDollar.
Even though Acorns offers a good service on its own, the abundance of competitive alternatives means there are cheaper ways to invest over the long term.
However, the behavioral and human psychology aspect cannot be ignored. The fact is that Acorns has helped tons of people save and invest for the first time, and there’s a reason why it’s grown so quickly.
If you currently struggle with saving and want a way to automate this habit or want a low maintenance way to invest, check out Acorns.
Lucas is a personal finance expert, an undergraduate student at Harvard University and the founder of the Personal Finance and Consulting Group at Harvard College (an officially recognized student organization). He has spent much of his life working to increase financial literacy in his surrounding communities through independent financial research and curricula design, and he is currently studying economics with a secondary in music.