Aspiration: A better bank for conscious consumers?
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Banks suck. I don’t think that’s a particularly controversial opinion – less than 30% of Americans have a significant amount of confidence in banks, according to Gallup. Turn on the news and you’ll see why. Or go to your local Netflix and pick up a movie about the collapse of the U.S. economy. It’s gotten so bad that people think post offices should be turned into banks. Soon, they’ll be suggesting that the DMV should become a bank, because even the cesspool that is your local DMV office would be better than an inherently corrupt private bank.
Aspiration is hoping that you have the same negative feelings about banks that I and so many other Americans have, because they want to totally flip that on its head. Providing both banking and investing services, Aspiration wants to be a "financial firm you can fall in love with," as they put it on their site.
What’s there to fall in love with? Their Summit checking account for starters – it offers a ridiculously high interest rate of 1% APY for balances above $2500. They also offer two mutual funds – the Flagship Fund and Redwood Fund – which aim to offer advanced investment strategies at lower buy-in prices than other funds. You might also love that they donate 10% of all of their profits to charity, and you’ll definitely love that you can set your own fees, even choosing to pay $0 per month if you want.
Let’s take a closer look at these products to see if this love at first sight to see if it’s worth getting into a long-term relationship with Aspiration.
If you’re Googling around for more information on Aspiration, it’s probably because of their Summit Account. This checking account seems almost too good to be true. As we previously established, if you deposit $2500, you get the insanely high interest rate of 1% APY. If you have less than $2500 in your account, you get the still pretty good interest of 0.25%. Other online banks boasting higher interest rates don’t come close—Charles Schwab offers .013% and Simple Bank offers just 0.01% APY - about the same you’ll get at most brick and mortar banks.
On top of their high interest rate, there’s no monthly maintenance fee. That means if you park $2500 in an account and don’t touch it for a year, you’ll be a little over $25 richer in twelve months. At most banks, you’d lose money in this scenario.
Of course, Aspiration is hoping you choose to give them somewhere between $1 and $10 every month as a "tip" for their services. They call this your "Pay What Is Fair" amount, and it’s completely voluntary. This amount can be adjusted at any time, and, like the rest of their profits, 10% of it goes to charity.
Like other online banks, Aspiration doesn’t charge you an ATM fee, and will even go so far as to refund you fees from the ATM operator. However, you might be turned off by some of Aspiration’s other fees, particularly their overdraft fee of $25. Because there’s no savings account to go along with their checking product, there’s no option to automatically move savings over to cover your overdraft.
Besides that, however, the Summit Account is a pretty standard online bank account. You won’t find many special or unique technical features here that help it stand out of the crowd. You can deposit a check via your phone, and you can have them send a check to anyone in the world (you can also order paper checks if you need them). Both their website and their app are a bit bare bones – though that’s pretty par for the course when it comes to financial products.
At the end of the day, the Summit Checking account is a good bank account for people looking to get a high interest rate but don’t want to deal with the limitations of a savings account. Just be careful to avoid overdrafting. If you want to sign up, you should know that there’s a short waiting list to get an Aspiration account, so you may be stuck waiting a few days to get your account.
Aspiration operates two mutual funds, the Flagship Fund and the Redwood Fund. As with any mutual fund, these funds operate a portfolio of assets that are invested according to a particular strategy. If there’s one larger principle that defines Aspiration’s strategies, it’s that they aim to bring more complex investment options to average people at a lower price point.
With the Flagship Fund, Aspiration’s first and (sigh) flagship fund, their strategy is "alternative investing." Instead of putting your money in the stock market, the Flagship Fund wants to provide a smoother road to riches that avoids the ups and down of the market. It does this by investing your money in a bunch of other funds – it is, essentially, a fund of funds – that all have different alternative investing strategies. These include exposure to higher-risk investments than more traditional assets, but the fund’s diversification helps protect against risk.
Aspiration’s other fund, the Redwood Fund, takes a different approach. The Redwood Fund is focused on sustainable investing, specifically investing in companies that have progressive environmental, social, and governance policies. The theory here is not only will these companies have brighter long-term futures because of these policies, thus increasing the value of your investment exponentially over time, but that you’ll feel good investing in them.
One big benefit to both of these funds is that, like the Summit Account, you can choose your own management fee. There are some fees associated with the funds within your fund that you have to pay – same with every fund – but you can decide how much you want to pay Aspiration for managing your money. Aspiration also offers IRAs for both of these investments which is a crucial account type that some other online-only investment products don’t offer yet.
But will these funds actually make you money? I can’t answer that question for you – these funds are relatively new and unproven, and it’s impossible to say if their strategies will bear fruit in the long term. However, I wouldn’t necessarily consider either of these funds as a first or only investment – even Aspiration’s founder suggests that only investing with their funds is a bad idea. Instead, think of them as a way to diversify out from your pre-existing 401(k) or perhaps an automated account at Betterment or Wealthfront. You could also look at Wealthsimple’s Socially Responsible Investing automated portfolio as an alternative to the Redwood Fund.
One more aspect of Aspiration worth mentioning: their "Do Good" giving platform that allows their customers to give to various charitable funds. On the account page, Do Good is directly below your bank and investment accounts, putting your charitable giving on equal footing with your wealth goals. You can choose a number of different causes you want to put money towards – poverty, the environment, and human rights are three examples – and then give a set amount of money to be divided between them.
Aspiration keeps you updated on the work that each charitable fund is donating to, and will also issue you a form at the end of the year so that you can deduct your charitable giving on your tax return.
There’s a lot to like about Aspiration: the high interest checking account, the choose-your-own-fee model, and the dedication to charitable giving are three qualities you could easily rattle off to anybody who questions your use of this financial firm.
But it feels like Aspiration is still a thinly-sketched love interest in a shallow TV show. Sure, Aspiration may look better than your current bank on the surface, but with only a checking account, it doesn’t feel like much of a bank, and with only two investment options to choose from, it hardly feels like a full-featured investment firm.
I would love to see Aspiration offer basic account types like savings accounts and CDs, and possibly even expand into customer-focused loans. Aspiration also needs to look into different types of investment options, including funds that are focused more on the basic building blocks of a diversified portfolio.
Until that point, people with more complex financial needs won’t feel totally fulfilled by a relationship with Aspiration. But if all you need is a checking account and a few diversified investments, Aspiration may be a financial firm that, like the best young loves, will grow with you.
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