Automated savings accounts and apps

Round up your daily transactions with the spare change automatically added to your savings.

Looking for an easier way to save money? Build a bigger bank balance without any hard work or discipline with the help of automated savings tools.

How do round-up savings accounts work?

Round-up savings features work by rounding up your daily transactions to the nearest £1 amount, and sending that loose change directly to your savings account.

For example, if you used your debit card to buy breakfast at a cafe for £11.20, it would round-up the value to an even £12 and send the extra 80p to your savings account. Or you could choose to have your transactions rounded up to the nearest £5 amount. This would round the purchase up to £15 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.

Round-up savings apps

You can also use round-up tools to round up your daily transactions and add the loose change into an investment portfolio.

One of the most well-known apps to do this is Chip. You just connect the Chip app to your current account and it then uses artificial intelligence (AI) to work out how much you can afford to save. It then moves small amounts of money from your current account into a Chip account at regular intervals (which you can control).

Other automated savings apps include Plum, Moneybox, Tandem and Monzo.

How else can I get automated savings?

There are several ways to set up transfers:

  • Direct debit to a savings account. It’s quick and easy to set up a regular direct debit from your transaction account to a linked savings account. You can specify that you want the funds to be automatically transferred to your savings account with the same frequency you receive your salary, such as weekly, fortnightly or monthly. A portion of each paycheque will then be sent straight to your savings account, where it can earn a higher rate of interest.
  • Transaction account with a sweep facility. Some transaction accounts feature something called a sweep facility, which automates transfers to and from a linked savings account. You just set a minimum and maximum limit for your transaction account balance, and your bank will automatically “sweep” funds between the two accounts, while making sure your balance stays within the limits you have set. This makes it easy to earn the maximum interest on your savings but also have sufficient access to spending money.
  • Invest your spare change. Some banks offer transaction accounts that round-up the spare change from debit card purchases and automatically sweep that change into a savings account. Other providers like Moneybox take the spare change from your purchases and invest them in a portfolio based on your financial goals and risk tolerance.
  • Direct debit to a pension. While your employer makes compulsory contributions to your pension, you also have the option to make voluntary contributions from your after-tax income. Once again, you can set up transfers up to occur however often you wish.

What are the benefits of automated savings?

There are several reasons why it’s worth setting up an automated savings plan, such as using a round-up or sweep tool:

  • It’s quick and easy to do. It only takes 5-10 minutes to set up everything required to automate your savings. This will not only save you plenty of time in the weeks and months to come, it’s also a great weapon to help you save money.
  • It’s convenient. Automating the process takes the hard work out of saving. When funds are automatically deposited into your savings account, you don’t have the hassle of manually transferring funds every time you get paid.
  • It takes matters out of your hands. Are you a sometimes saver, or regularly tempted to spend your paycheque rather than put it aside for a rainy day? Automating your savings means you don’t have to rely on your own financial discipline to ensure your nest egg keeps growing.
  • You put yourself first. When most people get paid they pay their creditors first: rent to the landlord, bills to utility companies, debt payments to credit card providers. Automating your savings means you pay yourself before you pay anyone else, allowing you to prioritise your own financial future above all else.
  • Your balance grows all the time. Every time you get paid, a portion of your paycheque goes directly to your savings account. This means that your balance increases every week, fortnight or month, and the power of compound interest also kicks in to provide an even bigger boost.
  • You can achieve your financial goals. As your savings balance builds without you having to lift a finger, you can reach your financial goals without even realising it. Whether you’re saving for a holiday or even a deposit for a house, an automated savings plan can help you get there.

Deciding how much to save

The first step when developing an automated savings plan is to work out exactly how much you can afford to save. To do this, you first need to create a budget. Sit down and write out all the expenses that come out of your regular paycheque, such as food, fuel, entertainment and credit card payments. Add them all up and see how much you have left.

Next it’s time to work out any areas where you can afford to cut back, such as eating out or an unused gym membership. If there’s anything you pay for that you don’t particularly need or want, eliminate it from your weekly expenses.

Once you’ve done this, you should be able to work out exactly how much you can afford to put aside from your weekly pay cheque to contribute to your savings account, pension or investment account.

If you open a transaction account with a sweep facility, it’s important that you set a realistic minimum limit for your transaction account balance. This will ensure that you always have access to enough money to cover any urgent expenses that may arise.

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.

What else can I do to maximise my savings?

Once you’ve automated your savings, there’s plenty more you can do to build a bigger bank balance:

  • Make extra deposits. Even if you have an automated plan in place to take care of your savings, don’t be afraid to make additional contributions to your savings account when you come into some extra cash. For example, if you get some money back from HMRC, deposit some of those funds into your savings account rather than simply spending them all.
  • Review your deposit amount. Your financial circumstances change all the time, such as when you get a new job, a pay rise, get married or start a family. With this in mind, it’s a good idea to review every few months or so how much you are automatically transferring to your savings account. Maybe you could afford to deposit £100 a week instead of £75?
  • Review your account. While the savings account you chose six months ago might have offered the best interest rate available at the time, a lot can change in half a year. There might be another bank offering a much better savings deal, so compare your options regularly and switch to the account offering the highest interest rate.
  • Avoid account fees. Paying unnecessary account-keeping fees can quickly eat into your savings, especially in a low interest-rate environment. Look for a savings account that doesn’t charge any fees, and make sure any linked transaction accounts are similarly fee-free.
  • Choose a bonus saver account. Bonus saver accounts let you earn extra interest whenever you meet specific terms and conditions, such as depositing a minimum amount each month and not making any withdrawals. By setting up an automated savings plan, it’s easy to ensure that you satisfy these account requirements and can maximise your interest-earning power.

Automated bill payments

Another way to save time and take the stress out of managing your day-to-day finances is to set up automatic bill payments. This can save you the hassle of organising payments every month or quarter when you receive your phone, Internet, electricity, gas, rates or health insurance bills.

You can set up direct debits so that all your regular bills are automatically deducted from your bank balance. This is very simple to do through your online account with each bill provider, or by downloading and completing a direct debit form.

The main benefit of automatic bill payments is that you never have to worry about forgetting to pay a bill. Also some companies offer a discount when you pay by direct debit.

Are there any traps to avoid?

There are a few key risks to be wary of when automating your savings or any other aspect of your finances. One common problem is forgetting which direct debits you have set up and to whom. This can get confusing and potentially messy when you change banks, close an account or switch energy providers. Make sure you take note of all the direct debits you have in place so you can quickly cancel them if the need arises.

Another risk is if you don’t have sufficient funds in your transaction account to meet an automatic payment. Make sure this doesn’t take you into your overdraft as then you may be charged fees.

It’s important to take care before signing a direct debit agreement. When you sign this type of agreement you 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, make sure that you’re aware of what it takes to cancel a direct debit. Sometimes it’s easy to just cancel it online, but your bank may try to charge a fee, or it might require you to visit a branch in person to stop payments.

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