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Setting Up Auto-Transfers

Building up your savings can help you get ahead financially, and auto-transfers can help you accelerate your savings plan. Here’s how.

March 15, 2022

We could all benefit from saving more money. Statistics show that around 70% of Americans have less than $1,000 in their bank accounts, and many of us live paycheck-to-paycheck.

Whether your goal is to pay off debt, or to start saving for retirement or a down payment, it all starts with the nitty-gritty of actually saving money. 

There are many different approaches to saving money. You could:

Regardless of your overall strategy, there’s one technique that can almost certainly help you reach your goals: Automating your savings through the use of auto-transfers. 

What is an auto-transfer? 

An auto-transfer is an automatic transfer of funds between bank accounts. Importantly, these are automatic transfers that are set up once and then repeated on a set schedule — without any further input required. 

For example, you could set up a $100 monthly transfer from your checking account to your savings account on the 15th of every month. 

Once you set it up, the transfer will complete automatically on the 15th of each month — as long as there are adequate funds in your checking account. If you don’t have enough funds in the checking account, you could be hit with an overdraft fee if your account doesn’t have overdraft protection

Electronic funds transfers are typically free, even when transferring to a different bank.

The term “auto-transfer” may also be used to refer to paying bills automatically. For instance, you can set up automatic payments for your credit card bills every month. Essentially, the term refers to any automatic, electronic transfer of funds. 

Examples of automatic transfers

Transfers between bank accounts: Any automatic transfer between bank accounts could be considered an auto-transfer. For instance, an auto-transfer may be:

  • A monthly transfer of $100 from checking to savings (at the same bank)

  • A weekly transfer of $50 from a checking account at bank A to savings account at bank B

  • A monthly transfer of $3,000 from a business checking account to a personal checking account

  • A weekly transfer of $25 from a checking account to an investment account with a stockbroker 

Paying rent: If you pay rent via bank transfer, you can set up an auto-transfer to your landlord every month. 

Paying credit card bills: You can automate paying off your credit cards each month. To set things up, sign in to your credit card account online and set up autopay. You can choose to pay the minimum payment, the statement balance or the entire current balance. 

Saving money: You can automate your savings strategy by setting up an auto-transfer from your checking account to your savings account. To accelerate your savings even more, consider using a high-yield savings account to earn more interest. 

How automatic transfers can help you reach your savings goals

Saving money is vital to improving your financial security. Whether you’re working toward a major savings goal or just trying to set aside a few dollars, it can be beneficial to automate your strategy. 

A good rule of thumb for saving money is to set aside 20% of your income for financial goals. Everyone has different goals (and income levels), but saving more money will benefit you regardless of your specific life situation. 

Here’s how automatic transfers of money can help you save more.

It reduces the “friction” of saving

Setting up an automatic transfer takes just a few minutes. Once it’s set up, the transfer will complete automatically, over and over again. 

Compared to manually transferring money every month, this substantially reduces the effort required — and makes it more likely that you’ll stick to your savings strategy.

It reduces the amount of money available to spend (and waste)

This one is simple: If you take home $2,500 per month after taxes, you have $2,500 in your account each month to spend. If you set up a monthly $500 transfer to your savings or investment account, you’ll have only $2,000 per month to spend. 

This simply means that you’ll need to adjust your spending to the new amount — while watching your savings grow substantially. 

It can benefit your long-term investing plans

Investing is a great way to build wealth. But it can also be intimidating, particularly if you invest a substantial chunk of money all at once. 

By setting up an automatic investment strategy, you can practice what is known as dollar-cost averaging. This allows you to buy into the stock market slowly over time, and avoid trying to time the market's fluctuations

It allows small amounts to add up over time

Even very small transfers — $25 every week, for example — can grow into a substantial amount over time. That $25/week is $1,300 per year or $13,000 after 10 years. 

Plus, if you have an interest-bearing savings account or investment account, your money can grow even more. Check out a savings calculator to test out different savings amounts. 

Wrapping up

Saving money should be a top financial priority for most of us — and automatic transfers can help us optimize our savings strategy.

Another financial priority should be paying off high-interest debt. If you have credit card debt, consider using Tally†. Tally is a personal finance app that helps qualifying Americans pay off their credit card debt faster. It works by giving access to a lower-interest credit line, which helps Tally users pay less interest. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.