How to save money with an automatic savings plan

Piggy Bank for Savings

An automatic savings plan is a savings method in which you divert funds into a savings account on a periodic and automated basis. You can set up an automatic savings plan at your bank or credit union to divert money into savings before you have an opportunity to spend it. You can divert money from your paycheck or from another account. The advantage is that this will ensure that money gets saved. You can adjust the amount that you save at any time. If you have a goal for your spending, this can motivate you to work harder to save.

Difficulty:

Moderate

Instructions

Things You'll Need

• Regular income every month
• Direct deposit
• Savings or checking account that permits automatic withdrawals
• Savings, checking, or CD account that allows automatic deposits periodically

Instructions

1. Set aside an amount of money that you are comfortable with for your automatic savings plan. First, determine that you can live without that amount each month. Reduce your expenditures elsewhere if need be. The minimum amount for a transfer of funds into an automatic savings plan varies, but can be as low as $10.

2. Select a savings or checking account from which money will be withdrawn periodically. For help, you can call the customer service line at your financial institution, or look on its Website. If you have direct deposit for your paychecks, you can select that as the source instead.

3. Select an account that will receive the money on a periodic basis. Popular accounts for automatic savings plans are savings and checking accounts, certificates of deposit, and money market deposit accounts. Investments such as stocks, savings bonds, and mutual funds also frequently offer this service. You can choose an account at your institution or at a different one.

4. Mark the "automatic deposits" option on the account application if it is a new account. If it is not a new account, you can call the institution and ask for a form for this purpose; many institutions will save you the time and let you set up the option over the phone. You must also provide information about the account from which the funds will be taken, such as the account number and the routing number which is the latter for checking accounts.

5. Choose a date, amount, and frequency for the automatic savings deposits, as well as a starting date.

6. Ask your payroll or human services manager to set up direct deposit if the option exists. Once direct deposit is set up, you can ask your financial institution to divert your chosen amount of money into your chosen automatic savings plan.

Tips & Warnings

• Review your plan periodically and adjust the amount that you put into it as needed.

• Put windfalls such as raises and tax refunds into your account to make it grow faster.

• Compare your plan's earnings rate - if it has one - to others in the market. If you are saving over a long time period, you can benefit by moving your funds to a higher-performing plan.

• Understand the risks of your account. While savings accounts, checking accounts, and certificates don't lose value by themselves, stocks and mutual funds can fluctuate in value and lose money.

References

• 20Something Finance: The Why and How of Setting up an Automatic Savings Plan

Resources

• Amateur Asset Allocator: How To Set Up An Automatic Investing Plan