July 14, 2024
6 Ways To Automate Money Into Your Savings Account

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When you save money instead of spending it, you buy financial freedom, security and protection against job loss and emergencies. A hefty savings account can enable entrepreneurs to launch a business, give people a cushion for car and home repairs and help the stressed-out masses build toward a sanity-saving, guilt-free vacation.

The key to successful saving is consistency over time, and automating the process can make it easier to reach your goals — and when it comes to strategies, you have no shortage of options.

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“There are many great ways to save for the future,” said Kimberlie McGee, head teller at Addition Financial, a Lake Mary, Florida credit union.

McGee has seen firsthand the habits that propel successful savers forward and the ones that impede those who struggle. Here’s how she tells her customers to automate their way to savings success:

Automate Small Deposits in Pursuit of a Manageable Goal

The simplest way to automate your savings is to eliminate human error and forgetfulness by letting your banking app transfer money on your behalf according to a schedule.

“One way people can build and grow their savings is by having a small direct deposit going into a higher-yield savings account and setting a quarterly goal they would like to reach,” McGee said.

The two keywords are “small” and “quarterly.”

Small is important because, for example, saving $12,000 next year might feel like too lofty a goal. However, $1,000 a month or $230 a week could feel more manageable, even though the end result is the same.

The quarterly part references the need to monitor your progress periodically and adjust your strategy as needed, whether four times a year or whatever schedule works for you.

Lay the Groundwork Before Moving Money

Forbes expands on McGee’s tactic by outlining a foundation for savings success:

  • Determine whether you’re working toward short-term (less than one year), mid-term (one to five years) or long-term (five years or more) goals.

  • Specify your goal and analyze your budget to ensure the goal is feasible.

  • Set a schedule and track your progress.

Treat Saving as a Bill

Forbes writes, “Everyone knows it’s wise to save money from each paycheck, but when you see that deposit in your account, it can be hard to let go of.”

Both McGee and Forbes agree on the power of adopting the mentality that saving is a bill you must pay whether you want to let go of the money in your checking account or not — and automatic transfers can help you win the battle of money psychology.

Forbes continues, “Automation takes the conscious decision to save versus spend off your plate by making it automatic.”

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Round Up Your Purchases To Save As You Spend

The Acorns investing platform popularized the round-up concept and now many banks offer the same savings-automation tactic.

“People can enroll in an AddUp savings program if their institution offers it,” said McGee, referencing the name of her credit union’s round-up saving program. Bank of America calls it Keep the Change. At SoFi, it’s Spare Change Savings.

But no matter the name, the concept is the same.

Once you enroll, your banking app will automatically round up the purchase price of the items you buy to the nearest dollar and deposit the difference into a savings account — if you spend $5.80, your app will make it an even $6 and transfer $0.20 to savings.

It’s a great way to automate savings and ensure you squirrel away a little bit every time you spend money.

Get a Head Start With a CD — or Several

Current interest rates are high, which means CD yields are generous — and CDs offer guaranteed returns and the peace of mind of FDIC insurance.

“Research financial institutions to see if there are any short-term certificates of deposits that may be paying 4% or 5%,” McGee said. “That is a good way to jump-start your savings.”

CDs typically pay slightly higher APYs than savings accounts because they require you to tie up your money for a set term, but you can cash in while retaining liquidity through laddering. A CD ladder consists of several CDs with staggered maturity dates.

For example, you could lock in a rate well over 5% now on a six-month CD and a one-year CD. Three months from now, you could invest in another six-month and one-year CD. That would give you maturity dates of six months, nine months, one year and 15 months.

You would collect the highest possible yields while ensuring you’re never more than three months away from penalty-free access to your savings. When a CD comes due, you can pocket the profits or roll them over into another CD to extend your ladder and your compounding, leading to McGee’s final point.

Start Now To Put the Saving Power of Compounding on Autopilot

You don’t need big deposits to build massive savings if you have a lot of time. That’s because savings accounts pay compound interest, which snowballs by paying interest on your principal plus the interest you earned. It’s an unstoppable force of saving, but it takes time to work its magic, so start now with whatever you have.

“I tell members early and often about the compound effect when it comes to savings,” McGee said.

While compounding will automate your savings forever, McGee encourages her customers to save more as they earn more and contribute extra whenever possible to add fuel to the fire. “Each month, if you increase the funds you put into savings by even a dollar, the compound effect results in great savings,” she said.

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This article originally appeared on GOBankingRates.com: I’m a Bank Teller: 6 Ways To Automate Money Into Your Savings Account

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