There are various reasons contributing to the rise of Fintech and the plethora of all kinds of financial services apps now on the market. It can be tempting to dive into some of these investment apps without thorough research, particularly as they generally demand much lower starter fees.
However, all investment carries risk, and there are no guarantees. Traditional investment rules apply to apps too. For example, it still stands that higher returns mean higher risks, and it’s important to regularly review your portfolio. But apps can absolutely take away some of the stress out of investing, saving and other financial services. Here’s a rundown of the kinds of apps available right now and their risks.
Wide range of Fintech services available
The Fintech sector covers a wide range of disruptive start-ups that use technology to simplify financial services. They offer something new to the market, or they offer something that was previously inaccessible for many users. Fintech began with the aim of disrupting traditional financial institutions and revolutionising the way we all manage finances.
More recently, established financial institutions and banks have realised the importance of this sector. They now offer their own FinTech solutions, either developed in-house, or in partnership with start-ups. The net result is a much wider choice for investors, savers and users.
Robo-advisor apps and websites
Robo-advisor services are a niche but fast-growing area of Fintech. They are online investment services that ask users a set of questions and come up with a plan based on the answers. The app uses algorithms to work out the best plan for the specific user.
There are few minimum requirements for users to open an investment account on these platforms, making them easily accessible to a wide market. They often offer low-cost, low-risk investments, which limit fees. They also reallocate assets and maintain the portfolio automatically, taking the stress away from the user.
Successful examples include Wealthfront and Betterment, but there are many to choose from. They specialise in reaching a generation of investors who do not generally use traditional investment advisors.
The biggest advantages for users are the low fees involved. For example, an online robo-advisory investment service usually charges around 0.25%, while a human financial advisor will charge around 1%. The obvious disadvantage is the robo-advisory service cannot allow for changes in personal circumstances, nor can they offer reassurance in worrying times.
Round-up savings and investment apps
Round-up apps can be thought of as the digital equivalent of hoarding spare change in a jar at home. Except that the change goes directly into a savings account or investment scheme that can accrue interest for the user.
Apps like Moneybox work by linking up with the user’s bank account or credit card. The user then sets their preferences on online transactions, and the app automatically rounds up the pound and puts the excess in the saving or investment account.
For example, a user spends £2.90 every day on a coffee. The app will take the extra 10p by rounding up to the nearest pound and transfer into the savings account. Another successful example is the digital bank Monzo, which has partnered with Investec to pay 1% interest on the savings account formed by the excess change on digital transactions.
Apps for trading stocks and shares
More seasoned investors are often interested in apps that allow them to carry out digital stock broking. Examples include Freetrade and IG Markets, which trade everything from shares, forex and bonds to commodities and cryptocurrency.
Fees are much lower than traditional broker services and are often commission free. However, they do tend to charge in other areas, such as instant orders and outgoing bank transfers, so it’s important to read the small print. These apps offer an impressive range of trading options and can work well for the right kind of investor. You can also try them out before you decide to invest, so it’s worth doing lots of research if this area of Fintech interests you.
Fintech appeals to lots of people thanks to its easy accessibility, flexibility and generally low fees. However, for serious investors with large portfolios, these apps often don’t offer the necessary levels of support. As big banks and financial institutions get on board the FinTech bandwagon, I think this is likely to change in the near future.