Digit, a money-saving app backed by Google's venture arm, is trying something new: a feature that automatically saves a portion of your tax refund.
For those new to Digit, it's an app that automatically saves money for you by tracking your income and spending patterns. Every 2 to 3 days, it takes a small portion out of your checking account (typically $2 to $17) to a separate Digit account managed by partner banks, Wells Fargo and BofI Federal Bank. Users are still allowed to withdraw their savings anytime they want through the service, but the goal is to save the money you won't even notice is missing.
Digit thinks there's a partcular need for its service around tax refunds, and on Thursday, it's launching a new service that automates tax refund savings through its app.
The way it works is dead-simple: Digit texts to ask users what percentage of the tax return they'd like to save, and once the tax refund gets in their checking accounts, it automatically moves the predetermined amount to their Digit accounts.
So why tax refunds? According to Digit CEO Ethan Bloch, the tax refund is the single largest influx of non-income cash Americans receive annually, yet most people end up squandering a large part of it away on unnecessary expenses. If they could set up a pre-commitment to save it, the chances of saving would dramatically increase, he says.
"We want people to save a larger portion of their tax return and not feel it. And not have to make decisions around it," Bloch told Business Insider.
The average savings from this service is expected to be much bigger than the average amount Digit saves on a regular basis for its users. Given Digit's main source of income comes from the savings interest, it could lead to a bigger influx of revenue, too.
But the other goal of this new initiative is to prove Bloch's belief that having an automatic saving system could significantly increase the chances of actually saving money. In order to track its effectiveness, Digit is partnering with the non-profit research center called CommonCents Lab, to find out how technology that automates certain things affects savings.
“We often find that financial decisions are made in the moment, without thinking about the big picture or the long term,” Dan Ariely, head of CommonCents Lab and professor of psychology and behavioral economics at Duke University, said in a statement.
“By partnering with Digit, we can identify behavior-related challenges to dealing with money and design interventions that help people save more.”
Digit, launched in 2014, has raised $13.8 million so far from GV (formerly called Google Ventures), General Catalyst Partners, and Baseline Ventures. It's processed over $100 million in savings in just under a year, it said.
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