Digit is an automated savings service. As always, my first question is Is Digit a Scam? Then, if Digit is legitimate, the question is what exactly does this online financial service do, and is Digit worth it for the average person’s personal financial situation.
Is Digit A Scam?
The burden of proof for calling something a scam differs based on what exactly it does, and what can be shown from available source. Digit is a venture capital backed internet start up, raising money from, among others, Google’s own venture capital arm. That in itself doesn’t mean it is not scam, but it does mean that it isn’t some fly-by-night hacker operation looking to steal a few credit card numbers and email addresses.
Is Digit Legitimate?
Since Digit is a legitimate business and not just a scam to steal your banking information, the question becomes whether Digit is necessary. 
The idea is that if you are not saving as much as you could/should/want to, then could a computer algorithm squeeze more savings out of your monthly cash flow? If so, then Digit is a legitimate service for the harried saver. If you’re already getting every penny, then you are just adding a layer for no reason. This is my review of the Digit automated savings service.
Digit Review
Digit is an automated saving service. If you are familiar with the concept behind the Nest thermometer, then you can consider Digit the Nest of saving.
There are many ways to automate your savings. One of the most popular is the concept of paying yourself first. Deductions that go straight to your 401k plan, or automatic transfers to your savings or money market account are examples of this. The trick to this concept is that you have to make some sort of educated guess, from your budget, about just how much to pay yourself before you actually experience the various life events that make up your spending for the month. If you guess wrong for that month and spend more money than expected, you’ll need to ensure that you can transfer some money back (easy from savings, not so easy from your 401k). But, what if you spend less than expected? You’ll need to notice and transfer some additional funds to savings.
As is often the case, if you already have a solid grasp on your personal finances and manage your money well, then a new service probably isn’t necessary for you. On the other hand, if you wish you could do better, and might be interested in getting some help, then Digit provides an automated way to increase your savings.
How Digit Works
Most of the press coverage of Digit is using the company supplied tag line that Digit “finds extra money” and then automatically saves it. Of course, there is no extra money that you didn’t have before, but a computer constantly looking for a dollar or two here or there may just find a few bucks more than you would while managing your finances.
To use Digit, you have to link it to your checking account. You won’t want to link it to a savings account because those accounts are typically restricted to just 6 withdrawals per month, and you don’t want Digit using them up for you.
Once linked, Digit begins to monitor your checking account balance. Over time, it builds up an algorithm that determines when you spend your money, and when you get paid. The idea is that when it sees an opportunity to stash some money away, it transfers it automatically to your Digit account. The company says it checks your account “every 2 or 3 days.” The transfers are typically between $5 and $50.
Here is where it gets a little gray. The Digit website mentions FDIC insurance, but doesn’t say exactly where the money is held. It does not appear that you get any statements or interest or anything like that. This is how Digit to makes money, they are keeping the interest earned on user’s money while it is in the secret Digit savings account somewhere. When you want your money back, you send a text to Digit and then they transfer the money back into the account they took it out of in the first place.
Is Digit a Good Idea?
Whether or not Digit is worth it depends very much on how you currently handle your finances.
For example, I always recommend that people keep a little buffer in their checking account to avoid ever coming up short on an unplanned expense. Digit will eventually drain that buffer away as “extra” money that you could be saving.
For the same reason, Digit is not a good idea for people who primarily use a debit card for their purchases. Digit requires some sort of routine for the algorithm to work. If you normally spend more money in the middle of the month, for example, Digit will account for that. However, if you go out and try and spend $800 on a new bedroom set using your debit card, Digit almost certainly is not prepared for that. Big, unusual expenses are probably going to be Digit’s Achilles heel.
People who get paid monthly will probably find Digit more problematic as well. If you get paid every week, sneaking a fiver out of your checking account probably won’t be noticed because new cash flow is coming soon. But, if Digit pulls $50 out on the 11th, and you don’t get paid until the 30th, then that might be more noticeable.
The best possible people to be using Digit are those that have very set spending patterns and then use a credit card, or debit card from a different account for big purchases. That way, Digit can figure out your spending and won’t ever be blindsided by a big purchase.
In the end, Digit is probably more fun than it is necessary. The fact is, assuming you have extra money each month, the only thing that happens is that it builds up. The premise behind Digit is that unless they took the money first, you would spend it. If that isn’t you, then you can just transfer the money whenever it is convenient for you.
Digit is a very neat concept, but only a small portion of people would actually need it.
Digit Review Scam Legit or Necessary? originally published at Personal Financial Advice Blog FinanceGourmet.com