By sbup Staff
It can be difficult to save when budgets are tight and there are so many immediate demands on your money. But saving is a critical component to long-term financial security -- and automating your savings makes the process easier.
In many cases, the biggest obstacle to saving is your own behavior. "If you move money into your savings only when you remember and feel financially comfortable, you probably won’t save enough,” says Kathy Longo, a certified financial planner and principal with Minnesota-based Accredited Investors Inc. "Move it over into savings before it gets into your bank account, before you even see it."
Automatic deposits don’t just apply to retirement plans—they work for savings accounts, too. Consider setting up automatic transfers from your checking account to either a savings account or money market account, timed to occur right after direct deposits. That way the money is already out of your account before you have the chance to spend it.
An automatic transfer not only reduces the chance you’ll forget to save, it can also save you money. Many banks and institutions offer incentives to automate savings: Wells Fargo (Quote: WFC), among others, waives the maintenance fee on its higher-end checking accounts if you set up an automatic transfer to savings. Bank of America's (Quote: BAC) Keep the Change program adds a twist to automating your savings: It rounds your check-card purchases up to the nearest dollar and deposits the change into a savings account. (Similar savings programs linked to credit cards, such as the One card from American Express (Quote: AXP), can result in automatic savings as well, but the overall benefit depends on your discipline in paying down your credit card balances.)
Interest rates on deposit accounts are relatively low these days, but they vary among banks. Shop around to see what interest rates are available near you by entering your ZIP code on manybanking.com's savings and money market account sections. When you find a bank that offers better-than-average rates, ask what savings programs they offer.
If this sounds like something that you think you should be doing, then don’t hesitate. Postponing savings – even just a year or two – can really hurt your bottom line. manybanking.com’s savings calculator can show you exactly how negatively a delay will impact your plans.
Whether you take advantage of an existing program or set up an automatic transfer on your own, the most important step is to start saving. That's easiest to do when you don't have to think about it.