What It Means
Automatic savings means setting up money to move into savings on a schedule, so it happens without you deciding each time. The Consumer Financial Protection Bureau (CFPB) describes two common ways: splitting a direct-deposited paycheck so part lands straight in savings, if your employer offers it, and a recurring transfer from checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more to savings on a day and amount you choose. Once it's running, saving becomes the defaultLoan defaultFailing to repay a loan as the contract requires, usually after missed payments, which lets the lender use stronger ways to collect. See more and skipping it takes effort.
Try It: See What an Automatic Transfer Adds Up To
Pick an amount and how often it moves. Totals leave out interest.
Set the transfer for payday or the day after, so the money is there when it moves.
How People Say It
- "Twenty bucks goes to savings every payday, I don't even see it."
- "My paycheck splits between two accounts."
- "I set up a transfer for the first of the month."
The Breakdown
Worked example. Maria is paid every two weeks and sets an automatic transfer for the day after payday:
| Amount per paycheck | Per year | After 3 years |
|---|---|---|
| $20 | $520 | $1,560 |
| $50 | $1,300 | $3,900 |
| $100 | $2,600 | $7,800 |
These are Buhata's arithmetic, before any interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more the account pays.
What the result means. Being paid every two weeks means 26 paydays a year, so a per-paycheck amount adds up faster than the same amount once a month: $50 every two weeks is $1,300 a year, and $50 monthly is $600. Start with an amount that won't leave checking short, and raise it after a raise or once a debt is paid off.
How to set it up
- Ask your employer whether direct depositDirect depositA payment, such as a paycheck or government benefit, sent electronically straight into your bank or credit union account instead of as a paper check. See more can be split between accounts, and give them the savings accountSavings accountA bank or credit union account for money you're setting aside for later, which earns interest and is insured up to federal limits at insured institutions. See more details.
- If not, set a recurring transfer at your bank or credit unionCredit unionA not-for-profit financial cooperative owned by its members, offering accounts and loans to people within the field of membership its charter sets. See more for the day after payday.
- Run it for a month and check your balance never ran short.
- Review the amount whenever your pay or bills change.
Good to Know
The CFPB notes that splitting a paycheck only works if your employer offers direct deposit and lets you divide it; otherwise a recurring transfer set up at your bank does the same job. It also suggests trying a new saving plan for a month and comparing what really happened before you automate it. Time the transfer so it can't overdrawOverdraftWhen a payment is bigger than your checking balance and the bank pays it anyway, leaving a negative balance you owe back, usually plus a fee. See more your checking account, since an overdraft feeOverdraft feeThe flat charge a bank adds each time it pays a transaction your checking account couldn't cover, on top of the negative balance you repay. See more could wipe out what the transfer saved. Keeping the savings at an FDIC-insured bank or a federally insured credit union protects it up to the insurance limits.
FAQ
What's the easiest way to save automatically?
A split direct deposit, if your employer offers one, since the money never lands in checking. Otherwise, a recurring transfer from checking to savings scheduled for payday works the same way.
How much should I save automatically?
An amount you can keep up every time without running checking short. Even $20 a paycheck every two weeks adds up to $520 a year, and you can raise it later.
Can I stop or change an automatic transfer?
Yes. Recurring transfers you set up at your bank can usually be changed or canceled in online banking, and a split deposit can be changed through your employer's payroll.
Do It in Buhata
Budget, repeating entries
Add the transfer to savings as a repeating entry in Budget on the same schedule as your paycheck, so it's counted before any other spending.
Open BuhataRelated Terms and Categories
- Pay yourself first
Moving a set amount into savings as soon as you're paid, before bills or spending, so saving comes first instead of from what's left.
- Direct deposit
A payment, such as a paycheck or government benefit, sent electronically straight into your bank or credit union account instead of as a paper check.
- Savings goal
A specific amount you plan to save by a set date for one purpose, which turns into a monthly or per-paycheck amount to set aside.
- Savings rate
The share of your income you save, found by dividing what you saved in a period by what you earned in that same period.
- Emergency fund
Money set aside only for unplanned costs, like a car repair, a medical bill or a lost paycheck, kept where you can reach it quickly.
- High-yield savings account
A savings account paying a variable interest rate that's generally higher than a traditional savings account's, often offered by online banks.
Sources
Consumer Financial Protection Bureau, "Looking for an easy way to save money? Make it automatic"; CFPB, "Set a goal, make a plan, and save automatically"
- www.consumerfinance.gov/about-us/blog/looking-easy-way-save-money-make-it-automatic
- www.consumerfinance.gov/about-us/blog/set-a-goal-make-a-plan-and-save-automatically
Last updated .