Q: What account can I set up where the money is directly deposited so I don't see the money?
A: Most checking accounts will accept direct deposits, and so will many savings accounts. You also need to talk to your employer to make sure their payroll system is set up to handle payments in this way. If it is a large employer, or at least an employer using a large payroll processing firm, chances are they routinely handle direct deposits. With a small employer handling payroll manually, it is not necessarily a given.
If you have access to direct deposit, it is both a great convenience and a potentially effective budgeting tool. Here are five tips for using direct deposit to your advantage:
1. Direct deposit into a checking account can qualify you for a fee waiver
Most checking accounts these days charge a monthly maintenance fee, which tend to be quite expensive. The most recent MoneyRates.com checking account fee survey found the average checking account fee totals $157.08 a year. Some banks offer to waive those fees under certain conditions, such as maintaining a certain minimum balance, but sometimes they involve having regular direct deposits made into the account.
Banks like the idea of money flowing automatically into your account, plus automated transactions help save them money, as opposed to you coming into a branch to deposit your paycheck. Since you want to set up direct deposit anyway, see if you can get a fee waiver out of the deal.
2. Consider splitting direct deposit between checking and savings
Having money directly deposited into a checking account is a convenience, but having at least some of your paycheck deposited into savings will help encourage saving money regularly. The idea is to have only enough to cover your budgeted expenses go into checking, so you are less tempted to spend outside of your budget. See whether your payroll provider can split direct deposits, and if not, consider having your full payroll deposit go into savings and then just periodically transfer a budgeted amount from savings to checking.
3. Find out how quickly your bank processes deposits
To avoid overdrafts, know when direct deposits are actually available for your use. You might get paid on Friday, but the deposit may not be on the books until the following Monday.
4. Use online tools to help monitor deposit activity
If your bank offers online statements or mobile notifications, tools like these can help you monitor when your automated deposits hit your account.
5. Don't neglect your 401(k) as part of your payroll directions
If your employer offers a 401(k) plan, consider directing some of your payroll towards that plan. This not only encourages saving, but it can also earn you tax advantages and the benefits of employer matching contributions if offered.
It is definitely worth talking to your employer about getting direct deposit set up because once you make that first step, it will make your life easier paycheck after paycheck.
Comment: Do you have direct deposit set up for your paychecks?
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