The youngsters of the world may not be aware that there was once a time when you received a paper paycheck, usually handed to you by your boss. You then had to take that check, endorse it, and stand on line at the bank to deposit the funds in your account. Then it typically took a few days for the check to process. In today’s world this is almost unheard-of, as everyone with a salaried job has direct deposit. With direct deposit, you supply your bank routing information to your employer and they electronically transfer funds to your account on payday no checks, no waiting in line, and no delays.

What a lot of people don’t consider is that direct deposit can be set up in different ways, and as a result can be a powerful tool for saving money, whether in general or for a specific purpose. It’s easy to set up and has a ton of advantages over trying to save money “manually” by putting money aside yourself.

Out of Sight, Out of Mind

Quick, how much did you pay in state taxes on your income last pay period? You don’t know, without looking at your check. In fact, we all often forget that our actual take-home pay is quite reduced from our supposed salary by automatic deductions for taxes, insurance payments, dues, and retirement account contributions. These are all taken out of our salary before we get the money, and as a result it’s a painless process we forget all about.

That can work for your savings, as well. By setting up a separate direct deposit for your savings account and having a portion of your salary automatically routed to it, you’re saving money without having to think consciously about it. This means you also don’t get the opportunity to decide not to make this week’s transfer, do you whereas now you can always decide you “can’t afford” to move money into savings, with direct deposit its just happens magically.


The other great aspect of saving via direct deposit is that you can either have a portion of your income deposited in a general savings account like a Money Market, or you can create an account specifically for a purpose for example, holiday shopping, or a vacation. Have a small amount of your salary sliced off into this account over a period of months, and when the time comes you have a preset budget for this event or activity that has accumulated painlessly. In the same way we fool ourselves into thinking of tax refunds as “free money” instead of money we loaned the government at zero interest, this is money we loaned ourselves but since it’s in a savings account, we at least earned a little interest on it!

The power of Direct Deposit lies in its hidden nature. If you set up a direct deposit savings plan, forget you did so as quickly as you can. The longer you can leave it alone to soak up interest and accumulate deposits, the more pleasantly surprised you’ll be when you check the balance.

About the author: Stephen Hart is a finance expert and owner of comparison site, a site built to allow SME’s to easily compare card payment fees in the UK and find the cheapest option for their payment processing.