Micro investing apps have hit the big time, is it time you cashed in?

Last Updated on October 12, 2022 by

Author: Jesse Coghlan

Australians are heavily leaning into micro investing platforms and the benefits they offer, which makes sense when you compare the returns on these products with the current interest rates on savings.

Savings accounts in Australia can earn an interest of a maximum of 2.5% a year if you’re lucky, which has been barely enough to outpace inflation. As inflation in 2021 spiked to 3.5%, it’s now a case that the money in a savings account is actually worth 1% less than it was at the start of the year.

It’s no wonder that the amount of Australians who have an account for these platforms has doubled. According to data from Cache, a company which helps create micro investing platforms in Australia, in 2021, the number of micro-investing accounts held by Australians more than doubled in size to 1.3 million, up from only 720,000 in 2020.

So why the spike in accounts? Using historical data, investing on these platforms has the potential to bring in returns of around 18% to 28% meaning that account holders are well outpacing inflation, and bringing in over seven times better returns in comparison to a savings account.

It used to be that Australians needed a lot of capital to start investing, a traditional platform like  CommSec from Commonwealth Bank requires over $400 as a deposit every time a user wishes to fund the account, and can charge up to $10 per trade.

Comparatively, most micro investment platforms don’t even have fees besides a monthly account management fee, which typically doesn’t run more than $3.50/month. Some even waive all fees until you reach over a few hundred dollars in your account, to give you a good start. If the platform does opt to charge for trades, you won’t pay more than a few dollars per trade, or a small percentage of the amount, we’re talking less than $4 here.

Starting with a small amount of capital is no problem either, with most, you can open an account and start investing with as little as $5, and top up with as little as you like. Make sure to look for deals too, as most platforms will offer new customers a few dollars, or even free shares or ETFs just for signing up and funding the account.

Is this sort of investment right for you? Is it time you cashed in the micro investing trend? That depends on what sort of risk you’re willing to take on, the returns on these micro investing apps are typically compared with savings accounts due to the timeline that’s recommended when investing.

With the exploding popularity of these products, the historical returns investors have earned, and the low cost compared to traditional platforms, they are definitely here to stay, and most likely aren’t a fad.

If you’re looking at an investment or savings timeline which spans over a short term, say 1-2 years, this probably isn’t best for you, as investing at the wrong time in a volatile market could see you make losses. Longer term timelines of over 8 years will probably be best, as it gives you more time to see through any period of volatility, with a chance that it is equalled out with periods of growth.

It’s always best to do your own research, and consider speaking with a financial advisor to understand if these types of products are best for you.

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