An automatic savings account is a type of savings system that allows the account contributor to deposit a set amount of money into a savings account at pre-determined intervals. Most commonly, this would be in conjunction with the contributor’s regular pay schedule. It allows an individual to automatically transfer a fixed amount into a savings account, usually on the same cadence they receive their paycheck.
The Benefits of an Automatic Savings Account Include:
Convenience – by allowing funds to be automatically withdrawn from your checking account to your savings account, you avoid having to go in and transfer money manually. Each paycheck will have a set amount transferred over.
Budgeting – an automatic savings account can be a huge help when budgeting your money. It provides the opportunity to budget the amount you want to contribute and prevents you from using those funds by moving them to your savings as soon as you get paid.
Discipline – paying yourself first can ensure you reach your financial goals. By setting up an automatic savings account, you know the percentage of your income that you are allocating toward your financial future will be in your savings account and available to put towards investing, debt repayment or other financial future means.
Setting up an Automatic Savings Plan
You have two options when setting up an automatic savings plan:
- Direct Deposit into a Savings Account – this option allows you to have your paycheck directly deposited into two accounts, savings and checking. You will need to set up a savings account and link it to your checking account. Then you will need to set up a direct deposit with your employer. While setting up a direct deposit, you can opt to have part of your paycheck directly deposited into your savings account each cycle and the rest deposited into your checking account.
- Automatic Transfer – the automatic transfer option allows you to transfer money from your checking to your savings on a set cadence. You will need to open a savings account or use your current savings account and link it to your checking account. After connecting the accounts, you will need to set up the transfer, indicating how much you want to transfer and how often.