Betterment vs. Acorns – Which Robo-Advisor Is The Right One For You?

Betterment vs. Acorns

For individuals who want to invest their money without navigating the ups and downs of the market, a robo-advisor is an excellent option. These platforms invest your money automatically so that you can grow your wealth over time and save for big goals like retirement. The benefit of a robo-advisor is that after you initially set up your account, you don’t need to do much at all to develop and maintain a balanced portfolio after setting up your account. 

Two of the biggest players in the robo-advisor space are Betterment and Acorns. Both offer low-cost plans and invest your money in similar types of assets, but they differ in the types of investing tools they put at your disposal. We’ll compare Betterment and Acorns head to head so you can decide which platform is right for you.

About Betterment And Acorns

Betterment was one of the earliest robo-advising platforms on the market. It was founded by CEO Jon Stein in 2010 and has swelled to more than 775,000 users. Betterment now has an estimated $32 billion in assets under management.

Acorns was founded in 2014 by Walter and Jeff Crutenden. The company has been backed by financial partners like PayPal, Blackrock, and Bain Capital. It claims more than 10 million users and $6.2 billion in total assets.

Betterment vs. Acorns: Account Types

Betterment and Acorns each offer several different account types for banking and investing. There is no minimum account balance for either service.

For investing, Betterment and Acorns each offer taxable accounts and retirement accounts, including traditional, Roth, and SEP IRAs. Only Betterment offers 401(k) accounts, while only Acorns offers UTMA accounts for children.

If you need checking and savings accounts, Betterment offers both for free. Betterment checking accounts come with $250,000 in FDIC insurance and a debit card, while savings accounts come with $1 million in FDIC insurance and a highly competitive 4.50% APY interest rate.

Acorns only offers a checking account and it isn’t free. The advantage to this account, though, is that you can get cashback when you use your Acorns debit card at hundreds of US retail and restaurant chains. Cashback on your debit card purchases is automatically rolled into your investment portfolio.

Betterment vs. Acorns: Investing Flexibility

Betterment and Acorns each invest your money in low-cost ETFs that cover a few basic asset classes: large-cap stocks, small-cap stocks, emerging market stocks, and bonds. Notably, Acorns also gives you exposure to the real estate market through real estate investment trusts.

The degree of control you have over your portfolio mix is very different between the two platforms. Acorns requires you to choose between five premade portfolio mixes, which range from “Conservative” to “Aggressive” depending on how heavily they are weighted towards stocks. You can’t customize the mix at all, although you can switch between these preset balances at any time. Acorns also has ESG-friendly versions of each of its portfolios.

Betterment, on the other hand, lets you tightly adjust the balance of asset classes you’re investing in. The algorithm will suggest a portfolio based on your risk tolerance and investing goals, but you can override the suggested asset balance and, for example, add more or less portfolio weight to large-cap stocks. There are also three ESG investment portfolios available for socially responsible investing.

Both Betterment and Acorns offer some exposure to the crypto industry. Betterment offers premade portfolios that include dozens of top cryptocurrencies for decentralized finance and metaverse applications. Acorns lets you invest in a Bitcoin futures ETF, although you’re limited to investing 5% of your total portfolio.

Betterment vs. Acorns: Investing Platform

Since most of your investments are managed for you, the investing platforms that Betterment and Acorns use are relatively simple. You can track how much money you have in your investment account and get a rough estimate of your return over time.

That said, there are some important features that each platform offers. With Betterment, you can create individual goals within your account. Each goal can have its own portfolio balance, so you can set up a more aggressive portfolio for funding a home purchase and a more conservative portfolio for saving for retirement. When you transfer money to Betterment, you get to decide which goal you want to put that money towards.

Acorns’ most unique feature is automatic rollovers. You can link your current debit card or your Acorns debit card to your investing account. Then, anytime you make a purchase, the amount is rounded up to the nearest dollar, and the difference is deposited into your investing account. You can increase the amount you transfer for investments by applying multipliers. Keep in mind that while rollovers can encourage saving, they are probably not enough on their own to keep your retirement contributions on track.

Both platforms cover essential robo-advisor features like automatic rebalancing and tax loss harvesting. So, if you want to set your portfolio on the right track and then forget about it, you can with either Betterment or Acorns.

Betterment vs. Acorns: Pricing And Fees

Neither Betterment nor Acorns requires a minimum deposit to open an account. But their pricing structures are different in important ways.

Betterment charges a flat fee of $4 per month or 0.25% per year (whichever is greater) for stock portfolios. The fee is the same regardless of what types of investment accounts you have. Money in a Betterment checking or savings account is not counted toward calculating your annual fee. Betterment charges a 1% fee for money invested in any of its crypto portfolios.

If you have at least $100,000 in your Betterment account, you can get access to human advisors for an additional 0.15% fee per year.

Acorns charges $3 per month for access to all of its tools, including investment accounts and checking accounts. There is no premium tier that offers access to human financial advisors.

Notably, the ETFs that Betterment invests your money in also tend to have slightly higher fees. The platform’s most expensive ETFs charge around 0.4%, compared to less than 0.2% for the ETFs that Acorns invests in. While this is a small difference, it can add up to a significant amount of money in fees over decades of investing.

Which Service Is Better?

Betterment and Acorns are similar in the assets they invest in, but there are many important differences between them.

Acorns is the better choice if you don’t mind the relative lack of investing flexibility. It’s cheaper than Betterment, especially when you consider its lower ETF fees. The inclusion of UTMA accounts is also nice for parents with children. If you need a nudge to invest for retirement, Acorns’ rollovers from your debit card purchases can also be useful.

Betterment is the better option if you want more control over your investments. The service sits squarely in between a full-service robo-advisor and a self-directed brokerage. There are a lot more portfolio options to mix and match than what’s available at Acorns, and the inclusion of cryptocurrency portfolios is a nice touch for younger investors who want to take on a bit more risk in their portfolios.

It’s important to understand the difference in management fees between Acorns and Betterment, as it’s significant for large portfolios. If you have a $10,000 account, you’ll pay $36 per year at Acorns (0.36%) vs. $48 per year at Betterment (0.48%). For a $50,000 account, you’ll still pay $36 per year at Acorns (0.07%) vs. $125 per year at Betterment (0.25%).

Alternatives to Betterment and Acorns

The primary competitor to Betterment and Acorns is Wealthfront, one of the largest robo-advising platforms in the US. Wealthfront offers exposure to a wider range of assets than Betterment for the same 0.25% annual fee. Wealthfront also matches Acorns’ low-cost ETF fees. Choosing between Wealthfront and Acorns comes down largely to which service is cheaper based on the amount you plan to invest.

If you’re considering Betterment because of its flexibility, you might also consider a service like M1 Finance. M1 Finance is somewhat like having a brokerage account in that you can invest in a mix of premade portfolios and individual stocks. However, it still takes care of rebalancing and tax loss harvesting.

You can invest with M1 Finance for free, which makes it a really attractive alternative to Betterment. The platform requires a minimum investment of $100.

Conclusion: Betterment vs. Acorns

Betterment and Acorns can help you invest your money for long-term goals like buying a home or retiring. Both Acorns and Betterment allow you to set and forget your investments to a large extent. We like the control that Betterment provides over your portfolio balance, but Acorns’ flat fee structure and low-cost ETFs make it the better choice for the majority of long-term investors.