What is Direct Deposit?
Direct deposit is offered by many employers as a method of delivering compensation to their employees. Instead of receiving a check or cash at the end of each pay period, you would give your employer your bank account information and your pay would automatically go into the account you choose each time you get paid. Direct deposit can be very convenient. You don’t have to worry about making deposits, driving to your bank constantly, or potentially losing a check. There are many deeper benefits to direct deposit as well, but they can often be overlooked. Do you know how to get the most out of direct deposit?
How much Can you Save with Direct Deposit?
To maximize your savings with direct deposit, you’ll first need to have a bank or credit union account. If you need to select one, there are a few things that you’ll need to consider. If you already have an account, you should review these qualities of your bank and determine if they are the right resource to use for your direct deposit.
- Look for the best high interest savings accounts. You want a savings account with a high APY, or annual percentage yield. But don’t you want to avoid high interest? Not in this case. APY is what the bank pays you for holding your money there. APR, or annual percentage rate, is when you want a low interest rate. This is what you pay the bank or lender for borrowing money.
- Look for savings incentives like CDs (Certificate of Deposit). Opening a CD can help maximize your earning potential. These accounts typically have much higher APY than a normal account. The drawback is that there is a set withdrawal date, and it is difficult (and expensive) to take out money before then. They can also carry a minimum starting deposit you’ll need to be aware of. However, you want to save this money and shouldn’t plan to withdraw any soon, so a CD can be a great option. Some banks even have regular CD raffles or drawings with cash prizes.
You’ll also want to carefully think through how much you should deposit into your savings account each time you get paid. Small amounts can add up, and it’s better to be comfortable with your available funds rather than constantly putting yourself through financial strain. You should try to save as much as you can, but spreading yourself too thin will only lead to you being tempted to make withdrawals from your savings. Review your spending habits and budget to see what would be a comfortable save amount for you. You can always (and should regularly) increase this amount over time, so don’t bite off more than you can chew right away.
How Much Could You Save By the Time You are 25?
Let’s say you start saving on your 18th birthday. Here is a direct deposit example of how much you can save through small deposits over time. With only $10 per week you could have almost $4000 by the time you are 25 years old. If you bump that up to $25 per week, you would have almost $10,000. And with $50 per week, you can save close to $20,000 by the time you are 25.
These savings deposits can add up quick, and a little extra can make a BIG difference. So rather than your daily energy drink or expensive coffee, throw it in your savings and buy a house instead!
|Saved Per Week||19 Years Old||20 Years Old||25 Years Old|
Tips and Tricks for Direct Deposit Savings
One of the biggest advantages to direct deposit is that it can be “out of sight, out of mind”. If you configure your deposits correctly, it’s like you never even saw the money that you’re saving, and are therefore far less likely to want to spend it. You should make it difficult to access your savings money and convince yourself that your savings is off limits.
Should you direct deposit into your savings or checking account? You could likely do both! Having multiple accounts can be a great way to promote healthy savings habits. Most employers that have direct deposit will allow you to split direct deposits and distribute throughout multiple accounts. This way you can maintain your normal checking account and use it for bills and other spending. Meanwhile you are also consistently depositing into a high interest savings account, without ever having to transfer or handle that money.
Another important tip to remember is that things change and you’ll need to adapt. Maybe you get a bonus or a raise at work. Or you switch jobs and are making more money. You’ll want to increase the amount you are saving with every raise. Calculating this by a percentage can also be very helpful. Instead of saving 10% of your earnings, maybe you want to increase that to 12% or 15% after a raise.
On the other hand, what if you have to take a significant amount of time off or your hours get cut? Make sure you’re ready to adapt and scale back your savings temporarily as well. It’s more important to make sure you don’t need to withdraw from your savings. Regardless, you should monitor your accounts and always think about how you can go even bigger. The sky’s the limit. Once you have some money saved up, you could consider investing at a young age. And if you have the mind of an entrepreneur, you could even consider starting a passive income business and have multiple streams of income.
How to Save the Same Without Direct Deposit
All of this sounds great but what if your job doesn’t offer direct deposit? Well, we have good news for you. You can still save in the exact same ways. This might require a bit more manual effort and limit the benefits you get from saving “out of sight, out of mind” however. The only difference if you don’t have direct deposit is that you would have to distribute and make these deposits yourself. The same principles apply – you can have multiple accounts, earn interest with a high APY, and save big money for your future. The key is motivation and dedication to achieving your financial goals.