Automate your savings with an automatic savings account

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.

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.

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.

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.