Betterment vs Acorns

Betterment and Acorns are two robo-advisors that help you create automated portfolios. While
they are similar in goals, their execution is different.

Betterment is Better for:Acorns is Better for:
Fixed Amount InvestingVariable Amount Investing
Human Financial AdvisorsIndividual Balances > $14,400
Long-term Investment GrowthFamily Balances > $24,000
Portfolio Type VarietyIncremental, Passive Investing
Variety of Retirement AccountsEducation Account
Planned Monthly AllocationsUnplanned Investments
Tax-Loss HarvestingMicro Investing
Investors of all Experience LevelsInexperienced Investors

Betterment and Acorns are well-respected robo-advisors with a slightly different take on automated investing. With Betterment, you can transfer fixed amounts of money for your automated portfolio goals. Acorns strives to get you investing in automated portfolios with “roundup” money that you never even miss.

Let’s look at some comparisons:

Betterment Acorns
Management Fees (AUM)

0.25% (0.15% for balances > $2 million)

$3 Individual, $5 Family, all accounts inclusive

Premium Subscription

0.40% AUM (0.30% for balances > $2 million)

None

Other Fees

No

$50 per ETF to transfer investments

Security Types

Stock and bond ETFs

Stock and bond ETFs

Portfolio Styles

Betterment Core Smart Beta Innovative Technologies Broad Impact Climate Impact Social Impact Betterment Cash BlackRock Target Impact Flexible Portfolio

Core Portfolio Environmental, Social, and Governance (ESG) Portfolio

Portfolio Risk Levels

Conservative, Moderate, Aggressive

Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive

Active or Passive?

Passive with some customizations in asset classes

Passive

Education Plan?

No

UTMA/UGMA Custodial Accounts

Investment Advice from Traditional Advisors?

Yes, with a Premium subscription or by paying $199/$299

No

Minimum Opening Balance

$0 ($10 for high-yield cash)

$0 to start investing

Tax-Loss Harvesting

Yes

No

Supported Accounts

Traditional, Roth, SEP, Inherited IRA Individual taxable accounts Joint taxable accounts with rights of survivorship Trust accounts Cash reserve Checking Account

Traditional, Roth, SEP IRAs, Individual taxable accounts, Custodial Accounts Checking Account

Earned APY on Cash Accounts

(0.10% on cash reserve)

0%

Crypto Investing

Yes, expert-managed crypto portfolios

No

Best Use

Passive investors who want to choose by portfolio type

Investors with low disposable income

Current Promotion

Click Here!

Click Here!

Modest Money Overall Rating
4.5 rating based on 5 ratings
4.4 rating based on 5 ratings

Betterment vs Acorns: Determining Factors?

Robo-advisors are investment management and advising firms that use computer algorithms to help build well-diversified investments consisting primarily of low-cost ETFs. Investing with a robo-advisor can be a great way to build your wealth and save for major life events like retirement.

Founded in 2008, Betterment is the oldest robo-advisor. Along the way, it has built a reputation as a no-nonsense management firm with a great track record. Unlike virtually every other robo-advisor, it comes with a human touch in the form of Certified Financial Planner (CFP) support.

A bit later, Acorns was born in 2012. In many ways, Acorns was founded with the same principles as Betterment, to help investors build well-diversified, robo-managed portfolios.

There is one major difference between Acorns and other robo-advisors like Betterment, however, and that is how Acorns gets you to put away money for retirement. Acorns encourages investment by enabling clients to “round up” transactions to the next dollar and invest the additional money into a long-term, well-diversified portfolio.

Which one of these automated portfolio builders is better for you to invest money in depends on factors like your disposable income, investment capital, and how aggressively you want to build your nest egg.

Modest Money concludes that Betterment is a better platform for most disciplined investors that are seriously thinking about their long-term financial security.

Acorns might be appropriate for investors who don’t have a lot of money right now but still deserve the opportunity to incrementally build for their financial future. Acorns is also fun to use.

Factor 1: Investment Fees

Betterment and Acorns have different annual fee structures. Unless you have more than $14,400 in assets under management (AUM), Betterment’s fees are lower.

Betterment’s Fees Are Lower than Acorns

  • Betterment charges 0.25% for most accounts
  • Acorns charges $3 per month for individual accounts
  • Unless your AUM is > $14,400, Betterment’s fees are cheaper

Betterment Fees

Betterment’s management fees are a low 0.25% for accounts up to $2 million. This is only a quarter of what you would likely be charged at a traditional investment brokerage with human financial advisors managing your cash.

For accounts above $2 million, the management fee is discounted to 0.15%.

For an account with unlimited access to human advisors, you can go Premium for an annual fee of 0.40% AUM once you have at least $100,000 invested with Betterment. Once this Premium account reaches $2 million, Betterment will discount your annual fee down to 0.30%.

With its portfolio of low-cost ETFs and automatic rebalancing, this makes Betterment’s rates cheap.

To open a Betterment account with a rock-bottom management fee, you can click here to receive current promotions.

Acorns Fees

Acorns uses a different model to calculate fees, a flat monthly rate. For an individual account, that’s $3 per month, while family accounts cost $5 monthly.

For the $3 flat individual rate, you will get all the account types available to you at no additional charge per account. For individual accounts this includes:

  • Taxable investment
  • Retirement
  • Checking with a metal debit card

The $5 family rate includes these three accounts plus the ability to open unlimited UTMA/UGMA custodial accounts for all your children.

While people might appreciate Acorns’ simplistic, flat-fee monthly structure, investors should keep in mind that it works out to $36 per year for individual subscriptions and $60 per year for family subscriptions.

To open an Acorns account with a low monthly flat fee, you can click here to receive a $5 bonus investment.

Betterment’s Fees Are Cheaper for Beginning Investors

Betterment’s 0.25% fee is lower than Acorns’ flat fee for most investors. An investor with $7,000 AUM would pay an annual management fee of $17.50, while the individual subscription fee at Acorns would be $36, over twice as much.

Of course, at a certain amount, the flat rate fee with Acorns would be cheaper than the percentage management fee. This would be an AUM of $14,400 or greater for individual accounts and $24,000 for family subscriptions. This calculation does not consider offsetting bonuses like tax-loss harvesting, which will be discussed below.

Factor 2: Portfolio Types

Both Betterment and Acorns restrict their available securities to stock and bond ETFs, which is standard for robo-advisors. Evaluating the availability of different portfolio types, however, can be a useful way to evaluate robo-advisors like Betterment and Acorns.

Betterment Has More Available Portfolio Types than Acorns

  • Betterment has nine basic portfolio types
  • Acorns has two basic portfolio types
  • Betterment has more portfolio diversity than Acorns

Betterment Portfolios

With Betterment, you can invest in these nine portfolios:

  • Betterment Core
  • Smart Beta
  • Innovative Technologies
  • Broad Impact
  • Climate Impact
  • Social Impact
  • Betterment Cash
  • BlackRock Target Impact
  • Flexible Portfolio

And within most categories of these portfolios, you can opt for conservative, moderate, or aggressive optimizations, depending on your risk tolerance. ETFs based on emerging market stocks, for example, might be allocated to the Aggressive portfolio. Betterment will calculate your risk tolerance for you, but you can also tweak it yourself.

Broad Impact, Climate Impact, and Social Impact are portfolio options that allow you to enter socially responsible investing, a key feature for many investors, especially Millennials and younger.

The Flexible Portfolio option allows you to allocate specific percentages to different asset classes, although you cannot choose individual ETFs.

With its recent acquisition of Makara, Betterment plans to offer crypto-based portfolios soon.

Acorns Portfolios

Acorns has both a Core Portfolio and its new socially responsible option, the Environmental, Social, and Governance (ESG) Portfolio.

You can optimize these portfolios for five risk levels:

  • Conservative
  • Moderately Conservative
  • Moderate
  • Moderately Aggressive
  • Aggressive

Risky ETFs based on emerging market stocks will be more heavily weighted in the Aggressive vs the Moderately Aggressive portfolio, but in the long term, these will likely earn higher returns. Conservative and Moderately Conservative portfolios will likely contain some ETFs based on municipal bonds or inflation-protected bonds.

With Acorns, your only customization option is to scroll through five risk levels and to change between Core and ESG options.

Betterment Has More Portfolio Diversity

While too much choice can defeat the purpose of automated portfolio investing, you still want enough diversity so that your robo-advisor can build the ideal portfolio for you, in terms of risk, financial gain, and, in some cases, your social goals.

With its two portfolios and five risk levels, the portfolio choices at Acorns are adequate. Yet with nine portfolios to choose from in addition to risk levels, Betterment’s portfolio diversity is superior.

Factor 3: Account Types

Account types are another thing to consider when choosing a robo-advisor. Depending on your specific situation, having more than one investment account might be appropriate.

Tax-advantaged retirement and education accounts, for instance, can grow your nest egg larger than keeping all your wealth in taxable accounts.

Betterment vs Acorns for Account Types: It Depends

  • Betterment has nine different account types
  • Acorns has six different account types
  • Acorns has fewer accounts than Betterment, but one of them is an education account

Betterment Account Types

Betterment has a good diversity of account types, more than many other robo-advisors, including Acorns. Betterment account types include:

  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Inherited IRA
  • Individual taxable accounts
  • Joint taxable accounts with rights of survivorship
  • Trust accounts
  • Cash reserve
  • Online Checking Account

But what Betterment doesn’t have is any type of tax-advantaged education account, like a 529 plan or UTMA/UGMA custodial account. This is a major disadvantage for parents who want to open automated portfolio accounts to help their kids save for college.

Betterment’s accounts do have great returns, however, which is something you can read more about in this review.

Acorns Account Types

Acorns has the following account types:

  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Individual taxable accounts
  • Minor Custodial Accounts
  • Checking Account

Acorns’ UTMA/UGMA custodial account is a major advantage over Betterment and many other robo-advisors.

While technically a taxable account, Acorns UTMA/UGMA custodial account is subject to lower taxes than if the money was being included with the parent’s income. It is also more flexible in terms of what UTMA/UGMA funds can be spent on, compared to a 529 plan, which limits spending on tuition and related expenses to avoid a 10% penalty.

Acorns Has More Utility for Parents Transferring Wealth to Children

Acorns’ UTMA/UGMA custodial account can help parents save for education and transfer wealth to children in the form of gifts at a lower tax rate. These custodial accounts can also be simpler to set up than traditional trusts.

With the inherited IRA option, Betterment has one more tax-advantaged retirement account than is available through Acorns.

Factor 4: Account Minimums

Account minimums are important to many investors who might only have a few dollars to start saving for retirement or building their wealth.

Robinhood is Superior to M1 Finance for Fees

  • Betterment has a $10 minimum opening balance on its cash reserve account
  • Acorns does not have minimum balances
  • Both Betterment and Acorns offer the ability to open investment accounts with no minimum deposit

Betterment Minimums

Betterment does not have minimums except on its Cash Reserve account, which is like a savings account but without the government-mandated restrictions on withdrawals. To open a Cash Reserve account, you must deposit at least $10, but you do not have to maintain a minimum account balance.

Acorns Minimums

Similarly, Acorns does not have minimums on its investment accounts.

Betterment and Acorns are Excellent for Minimum Balances

Having no minimum balance requirements shows that an investment company is committed to democratizing investing for even the lowest net-worth individuals.

While you don’t have to deposit a minimum balance to open an account, you need to put some cash in to invest. But whether that amount is $50, $20, or even $10 is up to you as far as both Betterment and Acorns are concerned.

You can set up both Betterment and Acorns to accept transfers from your bank account.

Factor 5: Extra Options

In addition to the other factors discussed, both Betterment and Acorns have other options that make them attractive to would-be investors. You should consider these when making your choice.

Betterment Tops Acorns in Extra Options

  • Starting at $199 or with a Premium plan, you can talk to a human for expert investment advice with Betterment, which also has tax-loss harvesting
  • Acorns has fun options, like roundups and Acorns Earn
  • Traditional human advisors are more useful than Acorns’ fun options

Betterment’s Human Advisor Packages

Mentioned briefly in the Investment Fees section, Betterment has Certified Financial Planners available to answer your questions. But you don’t have to have $100,000 AUM with them and opt into the Premium Plan to get access to the CFPs. You can also purchase CFP packages that start at $199.

The one drawback to robo-advisors is that you can’t ask them big-picture questions, such as how much you should save for retirement or accumulate enough money to buy your dream home. Enabling investors to periodically consult with a CFP about their financial situation and goals is why Betterment is an industry leader among robo-advisors.

Betterment also has tax-loss harvesting, a method of rebalancing your account for extra income opportunities. You can read more about how tax-loss harvesting can help you maximize returns here.

Acorns

Acorns is unique because you can connect to all your other accounts, checking, credit cards, savings, and set it so that Acorns rounds every transaction you make up, investing that difference into a well-diversified portfolio account to save money for retirement and other goals.

The idea is that you can save and invest your money with these roundups without even knowing it. For instance, if you bought a candy bar for $0.75, Acorns would transfer $0.25 into your investment account, rounding up the transaction in a way you would not likely miss but which would add up over time.

To read more about how roundups work, check out this article. Acorns also accepts periodic and one-time deposits from your bank account.

Acorns Earn is another terrific bonus option. Acorns Earn funnels rewards earned from 300 leading retailers to be deposited directly in your Acorns Invest account. You can even download a Chrome extension to use to help you find these rewards and link them to your account.

With its roundups and Acorns Earn, Acorns is a fun way to get into automated portfolio investing.

Though Acorns Is Fun, Betterment Has Human Advisors

Investing is a serious business, so for most people, potential access to human advisors is a better extra option.

Betterment vs Acorns: The Bottom Line

Betterment and Acorns are both sincere companies, seeking to make automated portfolio returns available to investors regardless of net worth.

At the end of the day, Betterment offers superior options, but roundups and retail rewards are also two great reasons to open an Acorns account, especially if you want to build custodial accounts for your children.

Betterment is Better for:Acorns is Better for:
Fixed Amount InvestingVariable Amount Investing
Human Financial AdvisorsIndividual Balances > $14,400
Long-term Investment GrowthFamily Balances > $24,000
Portfolio Type VarietyIncremental Passive Investing
Variety of Retirement AccountsEducation Account
Planned Monthly AllocationsUnplanned Investments
Tax-Loss HarvestingMicro Investing
Investors of all Experience LevelsInexperienced Investors

Betterment

Maybe it’s because they’ve had longer than all the other robo-advisors to perfect their model, but there are few, if any, options that beat Betterment in automated portfolio investing and saving for retirement. They are a major player in helping people get their personal finances in order.

A major disadvantage is not being able to create custodial accounts, but their low management fees, and the returns on their taxable and retirement accounts make them an attractive choice to most investors.

If you are a passive investor who still wants to maximize your available options, you can choose from one of Betterment’s nine portfolio options by clicking here.

Acorns

And if you are a beginning investor without a lot of disposable income but interested in how roundups and retail rewards can add to your investment portfolio, you can click here to open an Acorns account.

After all, who knows what that $30 reward from Nike could be worth in 50 years? You can find out by trying Acorns.

 

Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. After working many years in the website marketing industry, he decided to take on blogging full time and also get his finances headed in the right direction. Also check out his contributions to Equities.com and Benzinga.