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Only 17% of Americans Are Using Automatic Deposit To Save Money: Why Experts Say This Could Be a Mistake

GaudiLab / Shutterstock.com
GaudiLab / Shutterstock.com

People use many different methods to save money, including automatic options like direct deposits into a savings account or goal-based transfers. With so many options to choose from, it’s easier than ever to be consistent with your savings contributions as you start working toward both short- and long-term savings goals.

See: Money Expert Rachel Cruze Shares 8 Tips To Save Money Every Month
Check Out: How To Get Cash Back on Your Everyday Purchases

But despite the varied options and their relative accessibility, many people still don’t use automatic methods to save money. In fact, according to a GOBankingRates survey, only 17% of people rely on automatic transfers or deposits to build their savings. The rest use more manual methods like budgeting, shopping at thrift stores and savings challenges.

While there’s nothing inherently wrong with any money-saving method, manual savings methods may be harder to stay on top of than automatic ones. That said, automatic options also have their drawbacks.

Whatever your primary saving method might be, here are some reasons why you might — or might not — want to set up automatic deposits to save money and what you may want to consider instead.

Should You Set Up Automatic Deposits To Save Money?

For many people, automatic savings methods are rather beneficial.

“Setting up automatic deposits is like putting your savings on autopilot. It removes the guesswork and effort out of saving money each month,” said Jeff Rose, CFP and founder of GoodFinancialCents.com. “When you make saving automatic, you’re less likely to spend the money impulsively, and it helps in building a savings habit without even thinking about it.”

Robert R. Johnson, PhD, CFA, CAIA, and professor at Heider College of Business, Creighton University, also said automatic savings is generally a good idea.

“Making retirement and savings contributions automatic is a wise approach,” Johnson said. “People should try and automate as many financial decisions as they can. One must make saving money a habit. And habits — good or bad — develop over time.”

However, automatic savings might not be for everyone. Some people might feel more confident about setting aside money after paying their regular bills each month. Others might not have a set amount of money left over, making it harder to contribute a specific amount. Having automatic deposits can also stretch an already tight budget in ways that make it harder to pay regular bills.

“I think that it varies for if [automatic savings] is a good idea,” said Gina Knox, CEO and financial coach at Gina Knox Coaching. “I feel like a lot of people do better auditing their finances each month and seeing what money they have left over. They know their minimum number for expenses and additional money gets moved over to savings easily.”

Ultimately, everyone should look at their own financial situation and determine whether setting aside money automatically or manually is best for them. Even if you decide that automatic methods aren’t right for you now, you can always adopt one later on if things change.

Tips: 11 Bills You Should Never Put on Autopay

Effective Ways To Save Money

Whether you’re interested in switching to an automatic or manual savings method, here are some of the best options.

Savings Apps

Certain savings apps, many of which are completely free or charge a nominal monthly fee, could be a great way to start saving money automatically.

“There are several standout apps today that make saving money so easy,” Rose said. “Apps like Chime and Qapital round up your purchases and put the spare change into savings. Acorns invest[s] your spare change. Digit analyzes your spending and automatically saves the optimal amount every day. These tools make saving effortless and fun, and they can really add up over time”

Automatic Savings Plan

An automatic savings plan is another convenient, “set and forget it” way to save money.

“Automatic savings plans can take many forms,” Johnson said. “For instance, one can have a specific dollar amount or salary percentage taken out of each paycheck and put in a retirement plan or savings plan. The biggest advantage of automatic plans are behavioral underpinnings of the plans. If we are enrolled in an automatic savings plan, inertia and the inherent laziness of people tend to work in our favor. That is, once enrolled in an automatic savings plan, people tend to stay enrolled.”

Direct Deposit and Automatic Payments

If you have a checking account with a linked savings account, you can typically set up automatic contributions that occur whenever you get paid. This makes it easier to save money without having to think about it. You can also set up automatic bill pay, as long as you know you’ll have the money in your account when the payment comes due.

“I’m a big fan of automating your savings and expenses,” said Jay Zigmont, PhD, CFP®, founder of Childfree Wealth. “Make a list of your monthly ‘Musts.’ Musts are all of the bills you have to pay to keep a roof over your head and basic needs. Once you know your total musts, set up your paycheck to direct deposit what you need each check. You can then set up automatic payments for most of these bills.”

By doing this, you can avoid missed payments or late fees. You can also build savings and, if needed, improve your credit score over time.

Budgeting, Couponing and List-Making

For those who prefer a more manual savings option, there are several simple ways to start cutting expenses and save money.

“Often, simple yet practical steps, like using coupons, hunting for deals, and checking online reviews before making purchases, prove to be efficient,” said Michael Podolsky, the CEO and co-founder of PissedConsumer.com.

“Establishing a budget and sticking to it is another tried-and-true strategy that’s often overlooked,” Podolsky said. “Used in combination with a shopping list, it prevents consumers from overspending at the store. Lastly, prioritizing needs over wants and avoiding impulsive shopping can significantly aid in better money management and increased savings.”

Employer-Sponsored Retirement Plan

If you work at a company with an employer-sponsored plan — like a 401(k) — regularly contributing to that can also help you build savings without having to think too much about it.

“For many people, the first default savings plan is with a 401(k), 403(b), or other defined contribution plan,” said Brandon Robinson, president and founder of JBR Associates. “Remember, these contributions are tax-deferred and you will be hit with ordinary income taxes on all withdrawals. Also, most of these plans put your money at risk in the market. However, these are convenient plans to help you save money and invest automatically — and many employers offer a match on your contributions.”

Tax-Free Retirement Account

“Another great tool to automatically save is by setting up a Tax-Free Retirement Account (TFRA),” Robinson said. “Life insurance companies offer ways to set up these plans and you contribute to them automatically (monthly, quarterly, or annually). Your money grows with a selected ‘market index’ (like the S&P 500), but these are not securities, so your money is never at risk with a market downturn. When set up properly, your distributions come to you tax-free.”

Bottom Line

The best savings method depends on the individual. So, while automatic deposits or transfers might be better for one person or household, they might not be as effective for another. Consider your finances and savings goals, and then determine which method — or methods — you want to use based on what works best for you.

Methodology: GOBankingRates surveyed 1,037 Americans aged 18 and older from across the country between September 5 and September 7, 2023, asking five different questions: (1) How much money do you hope to save in the next year?; (2) What are you saving money for?; (3) How many savings accounts do you have?; (4) What is the primary method you use to save money?; and (5) What is your biggest roadblock/challenge in trying to save money?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

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This article originally appeared on GOBankingRates.com: Only 17% of Americans Are Using Automatic Deposit To Save Money: Why Experts Say This Could Be a Mistake

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