Our pick for automatic savings: Chime Savings
- No minimum balance
- No monthly service fees
- Get your paycheck early with direct deposit
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Automated savings tools can help you save more money and build a bigger bank balance. But which tool is best for you depends on your situation.
These tools round up your daily transactions to the nearest dollar and send the change directly to your savings account. For example, if you used your debit card to buy breakfast at a café for $17.20, it would round up to an even $18 and send the extra 80 cents to your savings account. Or, if you elect to have your transactions rounded up to the nearest $5 amount, it would round the purchase up to $20 and put the extra $2.80 into your savings.
It might seem like a small amount, but if you make several purchases a day this could add up to a lot of money over the course of a few months or a year. Plus, if the extra change from your transactions are being added to a high-interest savings account, you’ll also earn interest on that money.
There are three main types of automatic savings tools you can take advantage of:
Each automatic savings type serves its own purpose. Choosing the right one depends on your needs and goals. Keep these factors in mind when comparing different automatic savings types:
Click the tabs to explore popular options for automatic savings apps.
One of the most common ways to round up what you spend is to enroll in a program through your bank that lets you round up money from your checking account and automatically transfer it to your savings account. It works just like an automatic savings account, except you’ll need to opt in — and you’ll have the option to opt out.
There are several ways to set up transfers:
There are several reasons why it’s worthwhile setting up an automated savings plan:
The first step when developing an automated savings plan is to work out what your savings goals are and what method of automated savings will work best for you.
If you tend to figure out how much you can spend based on how much is in your account, using a tool that rounds up your purchases can be a good way to help you save without feeling like the plan is too stringent.
If you’re the sort of person that sets and sticks to a budget, you may be better off budgeting out exactly how much you want to save each month and having it automatically transferred to your savings account.
If you’re not sure what you style is, try out both methods. You can choose your favorite later on — or continue using multiple tools to save more.
Michelle wants to start saving, and she decides to work it into her monthly budget and schedule weekly transfers from her checking to her savings account, which earns 2.75% APR.
She figures out how much she’ll save if she puts away $10, $20, $50 or $100 each week to see how much of a difference compound interest makes. After comparing all of her options, Michelle puts together a new budget that lets her set aside $50 each week, which is enough to save up without affecting as much of her day-to-day life as saving more would.
|$10 weekly deposit||$20 weekly deposit||$50 weekly deposit||$100 weekly deposit|
|Interest rate||2.75% APR||2.75% APR||2.75% APR||2.75% APR|
|Account balance after 1 year||$527||$1,054||$2,635||$5,271|
|Account balance after 3 years||$1,626||$3,251||$8,129||$16,257|
|Account balance after 5 years||$2,786||$5,573||$13,932||$27,864|
Once you’ve automated your savings, there’s plenty more you can do to build a bigger bank balance:
Yes, but you can help keep your finances safe by knowing where your money is going.
The main risk is ending up with insufficient funds in your checking account if you move too much to your savings, which can leave you with overdraft fees. Check your bank account regularly while you’re getting used to your new savings plan to make sure you’re not transferring too much, or talk with your bank to find out if you’re able to enroll in an overdraft protection program that automatically transfers money from your savings account when your checking account can’t cover a transaction.
It’s also important to take care before signing a direct debit agreement. When you sign this type of agreement, you may hand control of your bank account over to a third party, so it’s important that you trust the merchant you’re dealing with and know exactly what you’re getting into.
Finally, find out ahead of time how to cancel your automated savings plan if you ever need to. Your bank may take several days to process the request or require you to visit a branch in person.
Just by taking a few minutes to set up an automated savings plan, you can quickly start building a bigger bank balance. And the more you manage to put aside each week, the better.
To save the most, compare savings accounts to find one with a competitive interest rate that fits your needs.
Image source: Getty Images
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