Robinhood vs Acorns

With the rise in robo-advisors and commission-free trading platforms, investors of all net worth have access to services they would never have dreamed of just a couple of decades ago. A significant question is this: to what extent do investors want to trade actively or build their wealth through passive portfolio investing?

Robinhood is Better for:Acorns is Better for:
Active InvestorsPassive Investors
Choosing Your Own SecuritiesAutomated Investing
Crypto InvestingEducation Account
IPOsIncremental Gains
Margin InvestingMicro Investing
Options InvestingRetirement Planning
Experienced InvestorsInexperienced Investors
Commission-Free TradingDiversified Portfolio Building

Not long ago, it cost thousands of dollars to get into a mutual fund, which was the main route investors had to portfolio building. Having a well-diversified portfolio is essential. According to modern portfolio theory, being properly diversified is the key to mitigating risk while maximizing gains. While Robinhood portfolio diversity is up there, Acorns offers just a bit more – but we’ll cover that later.

On the other hand, being an active trader was often costly, especially in terms of brokerage fees and commissions. These fees often wiped out investment returns, especially those of smaller investors, who often couldn’t afford to make trades that were large enough to offset high commission fees.

The expenses associated with passive and active investing deterred many individual would-be investors from putting money in anything but savings accounts. It was just too costly to try and make money with money.

Now even the smallest investors can get into the investing game with commission-free trading platforms like Robinhood and robo-advisors like Acorns. Robinhood and Acorns offer completely different services for different investing styles.

Which is better for you depends on your investment style and how much discretionary income you want to put into your investments. Most active traders will love the features offered by commission-free brokerage Robinhood while everyone who wants to retire one day will benefit from robo-managed portfolios like those provided by Acorns.

Robinhood Acorns
Account Fees

0

$3 per month

Premium Subscription

$5 per month for Robinhood Gold

$5 per month for Acorns Family

Other Fees

Regulatory fees, paper statements

No

Security Types

Stocks, ETFs, options, crypto, IPOs

Stock and bond ETFs

Investment Portfolio Styles

Build your own portfolio with stocks, options, crypto, ETFs

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

Active or Passive?

Active

Passive

Education Plan?

No

Yes, UTMA/UGMA Custodial Accounts

Minimum Opening Balance

$0

$0

Tax-Loss Harvesting

No

No

Supported Accounts

Taxable investment accounts

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

Earned APY on Cash Accounts

0.30% on cash management

0%

Crypto Investing

Yes

No

Best Use

Trading Individual Securities

Passive Automated Portfolio Investing

Current Promotion

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

Acorns vs Robinhood: Determining Factors?

The most significant determining factor between Robinhood and Acorns is what kind of investing you want to do. Robinhood offers active trading only, while Acorns only offers passive investment options. No one will choose your investments for you at Robinhood, and at Acorns, you don’t have an opportunity to select your own securities.

So, if you are already firmly in one camp or the other, the decision is already made for you. If you want to choose your securities, you should go with Robinhood. If you don’t, then Acorns or another robo-advisor like it will be a better choice.

Most people fall between categories and are not firmly dedicated to active or passive investing. For that reason, Modest Money offers this deep dive into the services of Robinhood and Acorns to help you figure out which you’d rather choose.

While Robinhood and Acorns offer different types of investing, Modest Money assesses that Robinhood does a better job as an active investment platform than Acorns does as a passive one. That said, Acorns has some unique aspects that make it appropriate for many investors.

Modest Money evaluated Robinhood vs. Acorns along several dimensions to help you decide—cost, investment style, account types, account minimums, and premium options. Let’s take a closer look at each of these.

Factor 1: Cost

Cost is a factor that investors sometimes tend to forget, especially when comparison shopping. While cost isn’t everything, it is a fair initial factor to evaluate any two services.

Robinhood Beats Acorns in Cost

  • Robinhood charges no commission or brokerage fees.
  • With Acorns, you pay subscription fees of $3 for a basic account.
  • Robinhood’s no-cost structure is preferable to that of Acorns.

Robinhood Cost

Is Robinhood better than Acorns in terms of cost?  You don’t have to pay anything to open an account with Robinhood. You also don’t have to pay brokerage or annual fees, and you don’t pay commissions on trades.

By default, you will be allocated a Robinhood Instant account when you sign up. This account type allows you to buy and sell securities, including stocks, ETFs, options (if approved), and cryptocurrency. You also get access to instant deposits of up to $1,000, so you don’t have to wait for your incoming cash transfers to clear before investing them.

Robinhood Instant is a margin account, which is useful even if you never do any margin investing. It allows you to access funds before they have settled to your account.

What are unsettled funds? Before the advent of online trading, buying and selling stocks involved the physical exchange of certificates. Even though securities can be exchanged online instantaneously, the U.S. still has laws designating a settlement period of two business days after you sell a stock.

With Robinhood’s margin account, you can reuse that cash to buy more securities without waiting for the end of the settlement period.

Robinhood offers all these features at no additional cost. So how does the brokerage make money?

Robinhood gets revenue from its premium accounts (discussed below) and margin interest, but a major way it generates income is through pay-for-order flow. This means it earns money for referring trades to market makers.

Some disapprove of pay-for-order flow, arguing that it could incentivize brokerages to make trades that are not at the best prices for their investors. No-cost brokerages, however, argue that this is how they can make commission-free trading available to investors.

While it is something to be aware of, Modest Money does not assess that pay-for-order flow affects prices significantly. However, active traders may want to monitor the bid-ask spreads of their trades to ensure this is not the case. For many entry-level investors, the money they save on management fees and commissions far outweigh minor price differences.

You can click here to open a Robinhood brokerage account for commission-free trading. You will get a free fractional “gift stock” from a top company that you get to choose simply for opening an account.

Acorns Cost

Unlike Robinhood, you will pay fees with Acorns, but unlike most robo-advisors, Acorns charges a flat monthly rate. The cost of an Acorns Individual subscription is $3 per month. Acorns will build a fully automated investment portfolio based on your individual risk tolerance in exchange for this fee.

With an Individual plan, you will have access to:

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

You don’t have to pay extra for these accounts. They are all included under the “Individual” umbrella.

Depending on how much you invest, $3 a month is either a very good or a very bad price. The average robo-advisor fee is annually around 0.25% of assets under management (AUM). Acorns’ $3 flat fee disregards investments amounts. Let’s crunch some numbers:

  • If you invest $100 with Acorns, your $3 monthly fee equals 36% AUM, which is 144 times what you would pay with robo-advisors like Betterment.
  • If you invest $20,000 with Acorns, your $3 monthly fee equals 0.18% AUM, which beats Betterment and other robo-advisors by 0.07%. As your balance increases, so would your comparative savings over other robo-advisors.

If you are into robo-managed investing, Acorns might be relatively expensive at first compared to other brokerages, but assuming you build your investments, you will recoup some of these fees over time.

You can open an Acorns account and get a $5 bonus investment through this link.

Robinhood is Cheaper

Any way you slice it, however, Robinhood is cheaper than Acorns. And a dollar saved is another dollar invested. There isn’t a Robinhood bonus structure, but some eligible customers may also receive a $10 cash reward for linking their Robinhood brokerage account to their bank.

Factor 2: Investment Style

Robinhood and Acorns offer radically different investment styles. Everything about Robinhood is active, from how much money you allocate to your account to when and how you trade securities.

Acorns, on the other hand, is so passive that once you do your initial setup with them, you never have to make another investment decision, and they will continue to build your portfolio anyway.

Acorns Has a Better Investment Style than Robinhood

  • Robinhood suits active investors who want to choose their own securities.
  • Acorns invests your money in a well-diversified portfolio account.
  • Acorns’ portfolio investing is preferable to Robinhood’s active trading.

Robinhood Investment Style

With Robinhood, you can actively trade stocks, exchange-traded funds (ETFs), options, crypto, and even get in on initial public offerings (IPOs) at prices traditionally reserved for institutions.

Active trading means choosing your own securities and following whatever investment type you like. You can use Robinhood’s platform to place highly speculative day trades based on intraday stock movements, or you can use it to build a well-diversified, long-term investment portfolio. Plus, you can use it for everything in between.

Unfortunately, the drawback to this is that many investors don’t have time to learn everything about investing or building their own bespoke investment strategy. For people without the time to research companies and build a diversified portfolio, it will be difficult to actively trade on Robinhood without making significant mistakes.

If you already have an investment strategy, Robinhood might be the perfect platform to help you execute it. Robinhood pairs well with investment research firms like Motley Fool, which has several subscriptions that walk you through the process of picking stocks and reasonably diversifying your portfolio.

Whatever your investment style, Robinhood has a friendly, streamlined interface. You can read about that and its other features here.

Acorns Investment Style

Acorns has two distinctive aspects: what it builds for you and how it builds it.

On the surface, Acorns seems remarkably like other robo-advisors. It builds you a risk-appropriate portfolio comprised of ETFs.

It offers you a few questions to assess the types of accounts you want to set up and your preferred risk tolerance level when you sign up. You can also opt between the Acorns core portfolio and the Acorns Environmental, Social, and Governance (ESG) portfolio.

Acorns has five risk tolerance levels, from Conservative to Aggressive. These risk levels help Acorns determine whether your portfolio should be weighted towards more conservative assets, like municipal bonds and inflation-protected bonds, or towards ETFs containing riskier tech stocks.

The only way you can customize your Acorns portfolio is by choosing between Core and ESG, and no matter what risk level Acorns assigns you based on your answers to their questions, you can manually switch your account to another risk tolerance.

The thing that distinguishes Acorns from everyone else is its round-ups feature. Once you link your accounts to it, Acorns will periodically transfer money from all linked accounts to “round up” your purchases to the next whole dollar figure. For instance, if you buy a pizza for $7.41, Acorns will transfer $.59 to one of its well-diversified portfolio accounts.

This is a principle based on behavioral economics geared to help you build your portfolio with money you don’t even miss. Over time, these round-ups can add up to quite a bit and even form the basis of your retirement wealth.

You can read our in-depth review of the investing features of Acorns to see screenshots of how these round-ups work.

Active Trading or Portfolio Building?

What is better for you depends on the type of investing you want. Modest Money prefers portfolio building, as this is more likely to yield stable returns in the long run, which is why Acorns wins this factor.

However, if you are determined to do some active trading, you can’t do better than Robinhood.

Factor 3: Account Types

Next up is account types. What Modest Money is assessing here is the mix of taxable and tax-advantaged accounts. Tax-advantaged accounts are essential because taking advantage of laws exempting or deferring certain taxes can help you build your wealth to an even greater extent.

Acorns Has More Account Types than Robinhood

  • Robinhood only has taxable investment accounts.
  • Acorns has six account types, including taxable and tax-advantaged accounts.
  • Acorns has a broader diversity of account types than Robinhood

Robinhood Account Types

You can’t set up retirement or education accounts with Robinhood, nor can you set up joint accounts. Robinhood only supports individual taxable accounts. This is limiting in terms of planning for retirement. If you want to set up an IRA, you will need to go with another service, such as Acorns.

As of 2021, Robinhood was reportedly considering offering traditional and Roth IRAs in addition to its taxable account options, according to remarks made by its CEO, though it has not made a move to do so yet.

While you don’t have a cash account option with Robinhood, you can have cash management added to your taxable investment account. With this feature, Robinhood “sweeps” your cash to partner banks, where it is FDIC-insured and earns 0.30% APY

Acorns Account Types

Acorns has the following account types:

  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Individual taxable accounts
  • Minor Custodial Accounts (UTMA/UGMA)
  • Checking Account

With the traditional Roth and SEP IRAs, Acorns has great coverage on retirement accounts. Because of the tax-advantaged nature of retirement accounts, you can accumulate more wealth because you are investing additional funds that would have otherwise been used to pay taxes.

You can also save for your children’s education with an Acorns Family UTMA/UGMA custodial account (there are currently no Robinhood custodial account options). While technically not tax-advantaged, this account does have some advantages over traditional accounts since it is subject to taxes at the child’s rate instead of that of the parent, which is likely to be higher.

Acorns Has More Accounts

Is Acorns better than Robinhood for accounts? Acorns has you covered when it comes to saving for education and retirement. Robinhood does not… at least not yet. If you go with Robinhood to satisfy your active trading desire, make sure you set up retirement accounts through another brokerage, such as Acorns.

Factor 4: Account Minimums

Having to deposit $500 or even $3,000 just to open an account is a drag. These requirements have traditionally priced many beginning investors out of the market.

Neither Robinhood Nor Acorns Require Minimum Balances

  • Robinhood does not require minimum amounts to open or keep accounts.
  • Acorns also has no minimum balance requirements.
  • Robinhood and Acorns are equally stellar when it comes to no minimum balance requirements.

Robinhood Account Minimums

As its name suggests, Robinhood is all about the democratization of investment finance. To that end, it enables all investors to open accounts without minimum balance requirements. When you want to invest, you need to deposit enough money to cover that investment.

However, Robinhood makes fractional shares available to all investors, meaning that you can own part of any stock even if you only have a few bucks to spare.

You must have at least $2,000 in securities in your Robinhood account to trade on margin, but this is a federally mandated requirement. Margin rates at Robinhood are a low 2.5%.

Once you open your account, you can make trades at Robinhood for as little as a dollar.

Acorns Account Minimums

Acorns takes a similar view to Robinhood when it comes to minimum account balance requirements: they don’t like them. You can open an Acorns account with no minimum deposit, but you need $5 to make your first investment.

Robinhood and Acorns are Equally Great about Minimum Deposits

Few brokerages and even robo-advisors allow you to open accounts with no money. Robinhood and Acorns win tops grades in this category.

Factor 5: Premium Options

You can do a lot with the basic accounts offered by Robinhood and Acorns. For even more, you can upgrade with both to premium level accounts.

Robinhood Has Better Premium Options Than Acorns

  • Robinhood Gold benefits include research and investing tools.
  • Acorns Family adds UTMA/UGMA custodial accounts.
  • Robinhood Gold brings more value to most investors than Acorns Family.

Robinhood Gold Cost and Benefits

For only $5 per month, you can upgrade from a basic account to Robinhood Gold.

Robinhood Gold has these benefits:

  • Access to up to $50,000 with Instant Deposit (up from $1,000 for the basic account).
  • Professional Morningstar research on more than 1,700 stocks
  • Nasdaq Level II market data
  • Margin investing, an enhancement over the basic account that only allows you to use margin to trade with unsettled funds

This plan has a lot of features that support individual investors, but is Robinhood Gold worth it? The access to the Morningstar research alone is worth more than $5 per month, not to mention margin investing and the rest.

The best thing about Robinhood Gold is that all its premium features are structured to benefit the actively-trading retail investors that use its platform.

Acorns

While an individual Acorns account costs $3 per month, you can upgrade to Acorns Family to $5 per month. Does Acorns have custodial accounts? Yes! Acorns Family opens access to custodial accounts, which you can set up for as many dependents as you want for one subscription fee.

Robinhood Gold Has More Extra Features than Acorns Family

Though their monthly cost is the same, Robinhood Gold has more useful features for their target audience of active traders than Acorns Family. Acorns Family is, however, useful for people who want to set up automated portfolio accounts for education planning.

Robinhood vs Acorns: The Bottom Line

With two definitive factor wins each and one tie, Robinhood and Acorns are close competitors in the field of digital investing. Whether you go for Acorns or Robinhood really does depend on the type of investing you want to do.

That said, not everyone needs or wants to actively trade their own securities, but everyone does need a diversified portfolio to grow their wealth. For that reason, though Robinhood is an excellent platform that is truly at the top of its class, Modest Money finds that Acorns is suitable for more investors than Robinhood.

Many investors prefer both portfolio building alongside the ability to actively trade securities. If you fall into this category, you may consider opening both accounts.

Robinhood is Better for:Acorns is Better for:
Active InvestorsPassive Investors
Choosing Your Own SecuritiesAutomated Investing
Crypto InvestingEducation Account
IPOsIncremental Gains
Margin InvestingMicro Investing
Options InvestingRetirement Planning
Experienced InvestorsInexperienced Investors
Commission-Free TradingDiversified Portfolio Building

Robinhood

The biggest question is if you should go for Robinhood or Acorns. Robinhood investing is best for people who want to build their own portfolio of assets, including stocks, ETFs, and crypto. Paying $5 for Robinhood Gold gives investors additional access to premium Morningstar Research and margin investing, among other extra features.

You can click here to open a Robinhood brokerage account. If you upgrade, you can get the first month of Robinhood Gold for free.

Acorns

Acorns is perfect for investors who want to benefit from automated portfolio building. You can start an account even if you don’t have a lot of disposable income, but with their flat fee structure, you’ll be paying more in management fees than you would with other robo-advisors until you have at least $14,400 invested.

Acorns is also fun to use, allowing you to save money and even invest retail rewards without your pockets feeling any lighter,

If you fall into this category, you can click here to open an Acorns account.

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.