Product

Round-ups - Raiz vs UP Bank vs Blossom Vs Bobbob

September 14, 2022
By
Bobbob Team

What started off as a small product feature a handful of apps tried out has now turned into a widespread micro-investing phenomenon. Businesses like Raiz Invest and crypto app Bamboo have built their entire business models on a simple feature called a Round-Up

Round-ups are seen by some as a solution, designed for the younger generation who are struggling to save money, to save money. 

As roundups are automated, there is no need for willpower or deliberation. You can save without effort. 

Read on to learn how round-ups work and if using round-ups is truly the best way to save money. Spoiler: We don’t think so!

In this article:

▪︎ How do Round-up and round-up savings work?

▪︎ Round-up app comparison in Australia

▪︎ Why should we spend in order to invest? 🤦🏼

▪︎ What about the times you saved instead of spent?

▪︎ Round ups take advantage of natural human flaw

What is a round-up? 

A round-up is given away by its name, it's a feature that rounds up transactions to the nearest full number or designated full number. 

How do round-ups work?

Simply, the app in question will link to your bank account via Open Banking. This means they can see your card swipes, payments (in and out) and balance on a live basis. The app will then allow you to select how much of a round-up you’d like, for example, round up to the nearest A$1, A$5 or A$10 and invest that extra rounded figure into the app in question. 

This can either be done on an as-and-when basis (every time you swipe your card) or when the round-ups reach a certain amount, eg: when your round-ups reach A$20.

The idea is that every time you make a purchase, you also contribute a little to your savings, or make a micro-investment.

Round-up example

You buy a coffee from your local hipster coffee spot in Bondi or Fitzroy for A$5.50 (yeah, Soy Latte inflation is real), you set your round up to the nearest A$1, the round-up will be A$0.50, if it was A$5, the round-up would be A$4.50.

The app takes an extra A$4.50 out of your account immediately or every time it reaches a threshold (like once A$20 has been reached) and invests that for you into the app in question. 

For Savings: Up bank

Up is a banking app, a division of Bendigo and Adelaide Bank, founded in 2017. Up offers features and functions that are meant to appeal to millennial Australians. 

Up offers a round-up tool from their cheque account to the Saver Account (their interest-bearing account offering  2.1% p.a. for users who make at least five card purchases a month, on balances up to A$1mil).

Each account has access to the round-up feature. Once you enable it, Up automatically rounds up any card purchase to the nearest dollar. You have the option to choose where you want the round-up to go or add an additional amount of up to $10 to increase your round-up for each purchase.

For Investment: Raiz 

Raiz, formerly known as Acorns originated in the US and launched here in 2016. It is primarily known as a micro-investment app. 

Raiz provides investments in Exchange Traded Funds (ETFs) and each portfolio incorporates a different strategy and mix of ETFs. The app charges a flat fee of $3.50 per month for portfolios under $15,000. For accounts with a balance of more than $15,000, they charge 0.275% per year (charged monthly, computed daily). So, a balance of around $15,000 would incur an annual fee of approximately $42.

Through round ups, Raiz’s customers can invest their round-ups automatically from card purchases into the app. The round-ups are calculated on your card spend but are withdrawn from your bank account, not the card. You can choose to link as many spending accounts as you like and adjust your round-up amount. These round-ups will then be invested into a portfolio of ETFs. 

For repayment of debt: Wisr

Wisr is a neo-lender and recently introduced round-up focussed on credit card and mortgage debt reduction. Wisr’s app links a user’s everyday transaction account  as long as it is not an overdraft or borrowed money. 

It will round up purchases to the nearest dollar and pay the funds into a nominated debt account – including credit card debt or mortgage debt with any financial institution, or Wisr issued personal loans. 

Wisr only allows users to pay one debt at a time. The money from round ups is debited at the end of each week, however, the funds are sent to your debt of choice at the end of each month.

Other Round up apps in Australia

Crypto: Bamboo

Bamboo is a crypto investment app that links up with your bank account and allows you to invest in crypto and precious metals. Theirround ups are invested as crypto micro-investments. 

Bamboo sync's to your selected bank accounts for transactions rounding.. You have the options to choose your mix of digital currencies such as Bitcoin, Ethereum, Gold and Silver. 

Bonds: Blossom

Blossom is an investment account that provides access to fixed income investment returns which targets a 3.5% p.a. return to customers. 

Blossom, too, has the round up function called Auto-Grow.. You can also decide on a multiplier, where you can multiply every round up by between 1x and 10x. 

Banks: ING round ups

The orange bank, known famously for both the Barefoot Investor’s love for it and Isla Fisher’s famous adverts, also has a round up feature, whereby every time you spend, the rounded-up figure goes into your savings account.

Should you round up your transactions? 

Round-ups are, in theory, a great way to invest in an automated way. 

The visible theory goes as follows: you can’t avoid certain expenses, so why not invest when you spend? 

The invisible theory (trigger warning): “Consumers are lazy, so why not let them ‘invest’ whenever they spend so they feel like their purchase is offset and we make more money?” 

At Bobbob, we like to question the status quo and share the invisible. So, let’s begin.

Giving access to your financial data

First and foremost, in order for round-ups to work, you need to grant the app or business in question to your banking data, meaning they can see where and when you spend, how often and how much you’re paid and even make assumptions as to whether you’re a gambler or like to drink a little too much, all by seeing your transaction history.

For the privacy-conscious individual, round-ups may not be for you. 🙅🏼

Why should we spend in order to invest?

The mindset we adopt when we spend to save can actually work against you. It makes you feel good about yourself as you’re mentally compensating, everytime you spend, you save a little. 

But does the A$2.50 round up compensate for the A$500 pair of shoes you just bought that you may only wear once? This isn’t true all the time, for necessities like Aldi or utilites, there is benefit as it’s mindless, easy saving. But the habit it creates on the whole, we’re not such a fan of.

Round-ups can offer a false sense of security. In reality, while you are spending to save, you’re not consciously saving with a goal in mind. How successful would your Summer Body diet be if you weren’t mindful, present, specific and strategic? We think savings and investing needs a similar mindset.

If round-ups are your only means of saving/investing your money, it might be time to whip-out a ‘diet plan’ / budget.

Round-ups may not help you save a lot, so if you have a saving goal in mind, you might be better off setting aside a planned amount or percentage of your salary at the beginning of the month before spending it, our recommendation is to use a budget, and saving as soon as your salary hits your bank account.

Ultimately, rounding up your purchases is not the most efficient way to save money. Try not to fall into the trap of spending more just because your savings are growing slightly with each purchase. 

What about the times you saved instead of spent? 

Round-ups encourage us to spend in order to invest. That’s so 2021. In today’s day and age, we are all mindful of our spending and try our very best to spend less, skip the coffee, extra beer or say no to the dress, in order to save for your holiday to Egypt you’ve dreamed about since the covid lockdown days. 

Where has all that money gone? It’s probably sitting in your cheque or savings account, meshed with all the other money you have there, without being able to notice and reward yourself for your brilliant expense management.

At Bobbob, we think saving what you never spent comes very close to second to a monthly budget (read more here), but lightyears ahead of round-ups.

As hard as we try, we very rarely end up saving what we never spent. 

Until now. 

We’ve built Save What You Don’t Spend (SWYDS) just for you, for betting savings and spending habits and to make your savings truly count.

In just 3 simple steps, you will be able to invest what you didn’t spend each week and have your money work for you, earning up to 7.60% p.a.. 

How does SWYDS work?

Follow 3 simple steps:

1. We’ll ask some questions to understand what you usually spend in a week (on coffee, meals, public transport, etc.) This takes all but 30 seconds to set up.

2. Every Friday, we will ask how much of it you never spent via a Push Notification to your phone.

3. You’ll then approve a direct debit from your account and save the money you never spent! Finally making your good expense management count towards your goals.

Round-ups take advantage of a natural human flaw

Humans suffer from a cognitive bias called the  "loss aversion" bias which describes why the pain of losing is psychologically twice as powerful as the pleasure of gaining. This often results in us procrastinating when we have to save money, and often hold on to loss-making investments (while selling profitable investments) as we don’t want to realise that loss. 

The study shows that you’re most likely better off selling your losers and taking the loss (ouch) 👀 

With round-ups, you save a little bit often, so the feeling of losing money (via investing or saving in chunks) is less noticeable.

Hence, this is why most people find that saving A$2 a day is easier than putting aside A$35 once a week. Your aversion to losing big chunks from your bank account. Yet the person who takes the bank balance loss of bigger chunks is surely victorious in the long run.

Are round-ups meeting your financial goals?

Have you ever wondered—are round-ups really putting your savings on autopilot? Consider how much you are likely to save using round-ups. 

The exact amount you can save with a round-up depends on how often you use your linked card and the size of your nominated round-up. Having said that, rounding up can form a dangerous illusion when it comes to saving money. 

While it feels good to save every time you spend, true financial freedom comes from a more mindful and direct focus on savings and investment.

Final Word

If SWYDS is bad for business, then so be it. We’d rather give what we think is the best way to invest a shot and help our customers create positive habits, rather than

letting customers live with old habits and have other businesses finding ways to make money off of those habits and natural human flaws.

This is why we built Bobbob.

To be better. To always be kind. To save now, have more later. 💚

Start earning 7.60% on your savings today.

Download Now

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