Automate Your Savings: What to Know

Susan GuilloryUpdated July 18, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

You’re thinking about your financial future and are ready to start saving money in earnest. The thing is, you’re not great at remembering to put money aside each month, and you end up spending anything that’s left over after paying your bills.Learning to automate your savings will enable you to put money aside without even having to think about it.

How Does Automating Your Savings Work?

When you automate your savings, money is automatically moved from your checking account to your savings account. This can be done weekly, biweekly, or monthly to fit within your budget and pay period. With automatic savings, you don’t have to remember to manually transfer the funds you wish to save. And while there are different types of savings accounts, most will allow you to set up a regular automatic transfer that, once you initiate, will continue regularly until you cancel it.Recommended: 25 Ways to Save Money Fast

How to Automate Savings

Setting up automatic savings is a quick and easy process. Here’s what you need to do so you can set it and forget it.

Step 1: Log Into Your Account

When first opening a bank account, you’ll be given login information to access your account online. Using your login credentials, log into your account.Even if you opened a bank account in person, you should have access online for both your checking and savings account. Recommended: What is an online savings account?

Step 2: Find the Transfer Funds Section

This may have a different name, depending on how your bank refers to it, but you should find a “transfer funds” section somewhere in your account. It may be combined with the section to pay bills. Here, you should be able to move funds from your checking account to your savings account at any time you please.

Step 3: Locate the Automatic Transfers Section

Because you’re not trying to make a manual transfer, keep digging until you find a page that allows you to set up automatic transfers. If you need assistance, you can always call or chat online with a representative from your bank.

Step 4: Set Up Your Transfer

Once you’ve located the automatic transfers section, you’ll set up your transfer to move however much you want to save each week or month from your checking account into your savings. You will be asked the frequency and amount you want to set up the automatic transfer. Note the date you set up the transfer because each month, you’ll need to have the amount of the transfer available in your account. If you don’t, you might incur an overdraft fee.Once you’ve decided on a frequency and amount you want to save, click “Submit.” Your automatic savings transfer should be all set up. Make sure to log into your bank account the next time you have an automatic transfer scheduled to ensure it’s working properly.Recommended: Banks That Don’t Charge Overdraft Fees

Optional: Set Up Direct Deposit

Another option is to automate savings directly from your paycheck. Many employers let you divert a percentage or flat amount to a separate account from your checking with each paycheck. You can send money to a savings account, a retirement account, or even a 529 account if you’re saving for your kids’ college education.Your human resources contact should have a form you can fill out to initiate an automatic deposit from your paycheck. You’ll need the account number for the savings account you want to move money to and you’ll need to specify how much you want to deposit each paycheck.

Pros and Cons of Automatic Savings

While there are plenty of benefits to automatic savings, there are also some drawbacks to be aware of, as well.

Pros

The biggest advantage of automatic savings is you actually will save money. For many people, it’s difficult to remember to save money. When it’s automated, you don’t have to worry about it. And given that for people under 35, where the average amount in savings is $11,250, automatically saving money can help you hit or surpass this number.Automatic savings can also help you focus on a particular goal you’re saving for, whether that’s a home remodel, a vacation, or a down payment on a house. You can increase the amount you save or even put money in different accounts for different savings goals.And finally, your money will earn interest when it’s in a savings account. Some banks offer high-interest savings accounts, so make sure to find one with a high rate so you can maximize your savings.

Cons

Saving money is always a good thing, but there are a few cons with automatic savings to be aware of. First, not all savings accounts are free. There are savings account fees at some banks, including a monthly fee for the account as well as a fee if you make more than six monthly withdrawals. If you can, choose a bank that does not charge a fee or make sure you meet the requirements to have the fees waived.Another con of automated savings is that you have to make sure you have enough in your checking account to cover the transfer each month. If you happen to have a big expense and then the transfer kicks in, you might end up overdrafting your checking account and being charged an overdraft fee.

Best Practices for Maintaining Automated Savings

While automating your savings is a great first step, you have to maintain (or increase) your savings amount each month in order to see the benefits. Let’s explore ways to help maintain your automated savings so you can keep the balance growing.

Adjust Contributions

Ideally, over time you’ll be putting more and more money away in your savings account. Look at how much you’re putting aside and determine how much more you can afford to add. If you get a raise, for example, you can increase your savings plan.

Look to Cut Expenses

If you’re trying to save for a big goal like a vacation or buying a house, every little bit counts. Look at your budget and determine where you can cut expenses. Do you really need your daily latte fix when that money could go toward reaching your goal faster? Even if you cut expenses temporarily, you’ll reach that goal before you know it and can resume those little splurges.

Turn a Blind Eye to Extra Money

If you find yourself with a windfall, such as a tax refund or money from an inheritance, don’t spend it. Instead, add it to your savings. You’ll never miss the money in your checking account, and your savings will grow even faster if you deposit it directly.

Find the Right Savings Account

Know that you don’t automatically have to use the savings account your bank offers. You may be able to find higher interest rates for a savings account at another bank, so shop around.

Avoid Common Automatic Savings Pitfalls

As mentioned before, there are a few negatives to watch out for when you automate your savings. The biggest is making sure you have enough money to cover the automatic transfer. When you first set up your automatic savings plan, take a close look at your monthly expenses to determine how much you can realistically afford to set aside. It’s better to start small and then increase your savings from there.Choose a day for the transfer when you’re confident you’ll have money in your account, such as right after payday. You can always set a reminder on your calendar a few days before to make sure you have adequate funds in your account.To avoid savings account fees, look for a bank that offers a free account when you open a checking account. And keep an eye on how many withdrawals you make because many banks will charge you a fee after six withdrawals. If you plan to make more than that, consider a money market account, which combines the interest-earning of a savings account with the flexibility of a checking account.

The Takeaway

Automating your savings guarantees you’ll save money weekly, biweekly, or monthly. Since the transfer is done automatically as frequently as you’d like, you avoid having to remember to manually move the money from checking to savings. Automating your savings also helps you prevent spending all of your money before you have a chance to save it.Lantern by SoFi can help you earn high interest on your money so that you reach your financial goals faster.Compare high-interest savings accounts with Lantern by SoFi today!

Frequently Asked Questions

What are the benefits of automatic savings?

What does it mean to automate your money?

What is passive money making?

Photo credit: iStock/standret

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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