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Automate your savings with an automatic savings account

Automate your savings with an automatic savings account

The higher cost of living and the ongoing economic impacts of COVID-19 have made it challenging for many Australians to save as much as they’d want to. A recent NAB Wellbeing Survey found that nearly 75 per cent of Australians are trying to save but finding it hard due to debt repayments, bills and everyday expenses. More than 40 per cent of the surveyed adults reported a dip in their personal savings in the past three months. Furthermore, the survey found that one in 10 Australians don’t have $2,000 in emergency funds, which some social organisations use to measure financial health.

The survey results indicate Australians have strong intentions to save, but household expenses and everyday activities prevent them from building a regular savings habit. If you’re finding it difficult to put away money towards your financial goals, an automatic savings plan could help you improve your financial wellbeing. 

An automatic savings plan puts your monthly savings on auto-pilot by directly transferring a part of your pay into your savings account. With the right financial planning, you can work out the amount you can afford to put into savings without cutting into the money you need to cover your essential expenses.

What is an automatic savings plan, and how does it work?

Do you notice your fortnightly car repayments or phone bills leave your account when you have a direct debit set up? An automatic savings plan is the same concept as direct debits. Setting one up can help you save more and reach your financial goals sooner.

An automatic savings plan works by setting up an automatic transfer from your everyday bank account into your online savings account. Work out how much you can spare to tuck away from each pay and regularly see your savings grow over time. For example, set up $200 to be automatically transferred from your pay each month to your online savings account. In one year, you can save $2,400, and that’s before the interest you’ll also earn on the account.

How can I make my savings automatic?

It’s easy to set up recurring transfers from your transaction account, where you receive your salary, to a linked savings account using online banking. 

  • Create an internet banking account and connect it with a high-interest savings account to set up an automatic direct-debit transfer.
  • You can specify the amount you want to be transferred and set the frequency to match your payday.
  • A fixed portion of your earnings will then be sent to your savings account at your specified frequency.
  • This money will then earn a higher interest rate than your transaction account.

You may also consider a 'round up' savings account to turn your loose change into wealth. The feature works by rounding up your daily transactions to the nearest $1 or $5 amount, as instructed by you. For example, if you use your debit card to purchase coffee for $4.80, it would round up the value to $5 and send the extra 20 cents to your savings account. 

Even though it seems like a small amount, all the purchases made by you and all those incremental round-ups can add up to a significant amount of money over time. The money in your savings account will also earn interest, helping it grow faster.

Figure out how much you can save

If you're setting up an automatic savings plan, it's essential to work out exactly how much you can afford to save. One of the most effective ways is to create a budget. You can download one of the several mobile budgeting apps which often allow you to sync to your bank accounts. Or you can do it manually by sitting down with a piece of paper and writing down all your expenses, including food, fuel, utilities and credit card payments. Once all the essentials are taken care of, see how much money is left to see what can be put away as your savings.

You may also use this opportunity to review your expenses. It will help you cut back on unnecessary costs, like memberships or subscriptions that you pay for but no longer use. 

Once this is done, you'll have a fair idea of how much you can afford to put aside from your pay and contribute to your savings account.

Of course, an automatic savings plan may seem like the perfect set and forget way to grow your savings. But you'll also need to ensure you have the funds being transferred to your savings account each month or incur a debit dishonour fee (if applicable). It's also important that you don't make unnecessary withdrawals on your savings to allow them to grow as planned.

What are the benefits of having an automatic savings account?

Setting up an automatic savings plan via direct debit makes it easier to avoid the temptation to spend by automatically removing money from your transaction account. Your savings should grow faster because you’re not spending the money set aside for a rainy day.

Each time you get paid, a fixed portion of your pay is directly deposited into your savings account so that your balance grows automatically over time. Even though interest rates on savings accounts are low at the moment, saving consistently over a few months or years can help you build a sizeable balance with some help from the power of compounding interest. You may also see savings account interest rates rise in the future, with several experts tipping that the cash rate could lift as high as 2.50 per cent in the next couple of years.

Automating your savings can be particularly useful if you’re not a regular saver or feel tempted to spend all your earnings. Some banks also give you the option of creating different savings pools and allocating different sums of money to each. You can set individual savings goals for each and achieve each of your financial goals without lifting a finger.

Selecting the right savings account for your needs:

  • Introductory savings accounts: These are savings accounts that offer bonus interest for the first few months, after which the interest rate will revert to a lower standard rate.
  • Conditional savings: These accounts pay you bonus interest if you meet certain conditions. For instance, depositing a certain amount of money each month or keeping the balance above a certain amount.
  • Online savings accounts: These are savings accounts that are based online and can only be accessed via an app or internet banking. They typically offer a higher interest rate than bricks and mortar banks because they don’t have to pay for things like branches and costly overheads.
  • Children's savings accounts: If you want to teach your child financial literacy, a children’s savings account can help them gain an understanding of the banking system.
  • Retirement accounts: Retirement savings accounts are available to older Australians and pensioners, typically offering a higher interest rate compared to a regular savings account. However, they’re becoming rarer as people typically depend on superannuation for retirement planning.

If you’re not sure how to choose the right type of savings account for your needs, you may find it helpful to read our Savings Accounts Guide. It shares practical tips on how to save and compare savings accounts to meet your financial goals.

Disclaimer

RateCity Pty Ltd (AFSL & ACL 316710) is not a credit provider and does not provide personal financial advice or credit assistance. In giving you information about products, RateCity is not making any suggestions or recommendations to you about a particular credit product.

Questions you may have:

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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