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Money systems that lead to success: Automatic savings

By Luke Landes

For the Deseret News

Published: Tuesday, Nov. 19 2013 10:00 a.m. MST

Here’s an example from Wells Fargo. When you sign in, the option to schedule an automatic transfer is one of the primary options in the menu. With your income directly deposited into your checking account, and with a savings account earning at least a little bit of interest, you can create a savings system that you set once and forget about. After a few weeks of regular transfers completed behind the scenes by the bank’s software, you won’t even notice the money isn’t in your checking account.

But a brick-and-mortar bank might not be the best option for savings. Sometimes your checking and savings accounts will be at two separate banks. In fact, often it’s better to separate these accounts so you can keep your savings in a bank that you’re not tempted to visit every day, like an online bank. Online banks often offer better interest rates, anyway. Over the last few years, the lines between online banks and brick and mortar banks have blurred. More traditional financial institutions are offering accounts you can only use online, for example. Here are some of my recommendations for savings accounts with the highest interest rates.

With Capital One 360, you can link your profile to an external bank account, like the Wells Fargo account I used in the example. This is my actual set-up, although my income is in a business account, not a personal account. Just like with Wells Fargo, you can use Capital One 360 to schedule a transfer; in this case, it would be an automatic transfer between the Wells Fargo checking account that is used for direct deposit and the savings account at Capital One 360 with the higher interest rate than the Wells Fargo savings account.

Value-added services.

A few years ago, Bank of America introduced a “Keep The Change” program to its customers. Here’s how this worked. Every time you made a purchase with your debit card, Bank of America would round the transaction up to the nearest dollar and transfer the remainder into your Bank of America savings account.

Now the bank’s savings account earned paltry interest compared to some other banks, but this systematic savings could be substantial. It’s like the coin jar at home. At the end of the day, when you take the change out of your pocket and place it in your coin jar, you’re saving your remainders. As more people moved away from cash transactions towards plastic — credit cards and debit cards — the coin jar doesn’t receive as much attention as it used to.

This, despite all the problems with Bank of America, was a clever extension of the coin jar metaphor into the digital age. Keep in mind, though, any interest you earn on savings in a bank account can be easily negated by account maintenance fees. especially if your savings isn’t large enough to produce interest that outweighs those fees.

Third-party services.

Last month, I was introduced to a start-up company in the financial industry called SavedPlus. This is a service that can help automate your savings based on your spending rather than your income. With SavedPlus, you link your primary spending, checking and savings accounts to the service. It’s a read-only connection; SavedPlus can’t change or otherwise affect the linked accounts. Every time you spend money, SavedPlus will initiate a transfer from your checking account to your savings account. It works across any combination of banks.

The amount of the transfer is based on the savings rate you determine. Mine is set at 10 percent.

I have my primary credit card linked to SavedPlus, so for each transaction that falls within a certain range, SavedPlus will transfer 10 percent of that transaction to my savings. The service has some protections; SavedPlus will not initiate a transfer if your account balance is too low or if your purchase is too high, based on parameters you determine.

The service is still new, and I am finding myself with a few questions, but it might be worth some experimentation.

There’s a drawback to automatic savings. The advantage of creating this system for saving money can also create a money management problem. Once you stop actively making one particular decision with your income each pay period, it’s easy to forget what you’re doing and why you’re doing it. You need to continue to look at your financial status on a regular basis, just like we do on Consumerism Commentary with Naked With Cash. Frequently evaluate whether the choices you made and set into motion with an automatic system continue to be the best options for you.

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