If you work for a large employer such as a hospital, a university or a grocery chain, you probably never see an actual check. Instead, you most likely get paid via direct deposit. You probably set it up along with the interminable other forms you signed when you took your job, and have never given it much thought.
Did you know direct deposit can be a powerful tool in your quest to save money? Here's three ways direct deposit helps you save:
- Bank fees: Many banks will waive their monthly checking account maintenance fees if you use direct deposit to have your salary delivered to them.
- Bank perks: Often, using direct deposit will qualify you for special perks from your bank. These might include a higher interest rate on your checking account or additional fee waivers.
- Make savings automatic: You can also send part of your direct deposit to your savings account instead of your checking. This makes saving in your savings account as automatic as paying taxes or making retirement fund contributions. You won't miss the money too much because it disappears before you ever see it.
Automating your savings
The trick to automating your savings is that you can break your direct deposit up into multiple accounts. Most direct deposit programs will allow you to split your deposit up to four ways. This allows you not only to automate your savings but actually to send specific amounts to multiple accounts.
For example, you could set up direct deposit to pay a certain amount into savings, a certain amount into a dedicated account that just covers the mortgage each month, and the remainder into the checking account for day to day expenses. You can tailor yours to meet your specific banking needs.
Using a dedicated direct deposit is a great way to build up savings, especially for your emergency fund. You can direct the money to your online high-yield savings account automatically each time you get paid, and never have to think about making those contributions. The savings will just steadily accumulate.
What you need
To set up your direct deposit, you'll need to get the appropriate forms from your human resources department. Then you'll need some information from your bank. For each account you want your direct deposits to go to, you'll need:
- the bank's routing number
- your account number
- the amount of the deposit
You should have your account number handy. The routing number can be trickier to find, but it's either printed on your checks or available through your bank's website.
Making it work
Once you've set up your direct deposit to savings, the most important thing to do is leave it alone. Having your savings at an online bank can really help with this: it's separated from your day-to-day banking, and it takes a few days to transfer money from those accounts to your regular checking. All that makes it less tempting to raid your savings for an "emergency" like a big sale at your favorite department store.
Use whatever trick you need to use to keep your savings out of reach. For most people, out of sight equals out of mind. If you can avoid the temptation to dip into it, you'll be astonished how quickly your nest egg grows over time. The easiest way to save money is simply not to spend it.
Getting the most
To really get the most from your direct deposit, be sure that all the accounts you're sending money to are earning the best possible interest rates. That includes your checking account. Don't settle for the deal offered at your corner bank. Shop around for a rewards checking account and get the best interest rate you can on your checking account as well as your savings.
Often, direct deposit allows you to get free access to services banks normally charge fees for. Take advantage of that and go for the rewards account with the highest interest rate. You'll be getting the most from your money that way. Best of all, there's no ongoing effort to maintain it. You set it up once and then you're done.
You can change your direct deposits at any time, so don't be shy about trying it out. Go ahead and customize your direct deposit today.