Everyone loves payday, but the way you receive that money can save time or require a trip to the bank. If you receive a paper check each week, you will have to cash it in at a local branch. Some banks circumvent this requirement by letting their clients take pictures of their checks and update account balances based on those pictures.
Direct deposit is an easier way to receive your money. While many people use direct deposits for their checking accounts, some people may prefer to have those deposits in their savings accounts instead. It is possible, but it’s not for everyone. This article will explore everything you need to know about setting up direct deposits for your savings account.
How Does a Direct Deposit Work?
Direct deposits are electronic funds transfers that seamlessly transfer funds from your employer’s bank account to your account. The Automated Clearing House (ACH) handles these transactions and ensures direct deposits go to the right individuals. These deposits happen in the background. It’s possible not to check your bank account for months and still receive weekly paychecks, but it is a good idea to monitor your balance.
Reasons Why You Might Want to Direct Deposit into a Savings Account
You can set up direct deposits for a checking or savings account. These are some of the reasons it may make sense to have funds go into your savings.
More Convenient
You don’t have to move funds from your checking account to your savings account. When direct deposits go into your savings account, they already go where you want them to go. However, if you find yourself moving funds from your checking account to your savings account often, it may make sense to use your savings for direct deposits.
Direct deposits, in general, are more convenient than receiving checks. You either have to take a picture of the check or visit your local bank. Direct deposits happen automatically.
Less Temptation to Spend
Your savings account may have a better interest rate than your checking account. That higher interest rate gives you the incentive to hold onto your money instead of spending it. Giving yourself less money to spend in your checking account will make you more conscious about every purchase.
If you keep your funds in a savings account, you can minimize the temptation to spend extra money. Setting a goal for your savings accounts, such as a down payment, auto purchase, or retirement, can further reduce your desire to spend money. Creating financial goals and sticking to them with your savings account allows you to limit your spending to meaningful purchases and achievements.
Manage Your Budget Better
Savings accounts provide a distinction between the money you can spend and the money you should keep. Having less money to spend can force you to develop a better budget. In addition, reviewing your monthly expenses can reveal unused subscriptions and other unnecessary costs.
Save More in the Long Run
Keeping your money stashed in your savings account lets you save more money. Many banks have limits on how many withdrawals you can make from your savings account each month. It’s also becoming more common to find savings accounts with 3%-5% APY. This is a risk-free return due to the banks having FDIC insurance. If you branch out to online banks, it gets easier to find that type of APY. You don’t even have to lock up your money like you would have to for a certificate of deposit. Sending direct deposits to your savings account can grow your funds in the long run.
Can You Direct Deposit into a Savings Account?
Yes. You can set up direct deposits so the funds automatically go into your savings account. You won’t incur any penalty for doing so. Banks have limits on how many withdrawals you can make from your savings account, but they have no limits on how many deposits you can make into your savings.
Should You Deposit into Your Checking or Savings Account?
It depends on how you intend to use the funds from your direct deposits. Checking accounts is better for covering everyday purchases. On the other hand, if you frequently reach into your direct deposits to cover costs, it may make more sense to put those funds in a checking account. However, if you want to save money, it makes more sense to set up direct deposits for your savings account.
Savings accounts also have higher yields than checking accounts, giving them another advantage. Despite market volatility, you can generate a risk-free return from your savings account. Your cash can grow on the sidelines and put you in a better position if you need to dip into your emergency fund or use your savings account to fund a significant purchase.
Can You Split a Direct Deposit into Different Accounts?
Some companies will let you split a direct deposit into different accounts. This isn’t guaranteed, but consumers have workarounds. For example, you can manually move some money from your savings account to your checking account or vice-versa. This transaction can take place for every direct deposit, but you will have to stay on top of your finances to make this work.
Consumers who receive direct deposits from multiple companies can split the direct deposits among their bank accounts. Direct deposits from one group of clients can go into a savings account, and direct deposits from the remaining group of clients can go into a checking account.
How to Set Up a Direct Deposit into a Savings Account
Setting up a direct deposit into a savings account is straightforward. Many financial institutions and websites that enable direct deposits can guide you through the process. You will have to provide the following information to enable direct deposits:
- Account number
- Routing number
- The name on your account
- Your bank’s address
- The type of bank account (i.e., checking or savings)
- Identification that matches up with the name on your account
Some websites have forms that simplify the process and let you fill in this information. However, some workers may have to contact their employer for additional instructions on setting up direct deposits.
Direct deposits can be a useful addition to your savings accounts. Growing your savings balance can help you capitalize on high interest rates and save money for your financial goals.
