Personal Finance

How to Automate Your Savings and Watch Your Wealth Grow

Rich Duprey

Published: February 5, 2025 11:32 am

Taking the thinking out of saving money by automating the process is one of the most effective strategies for building wealth over the long term. Too often we find other ways to spend the money if we have to first think about putting it away.

One of the best vehicles for automating your savings is with a high-yield savings account (HYSA). This approach not only ensures consistency in saving, but also maximizes returns through interest accumulation. Here’s how you can set up an automated savings system to leverage high-yield savings accounts for long-term financial growth.

24/7 Wall St. Key Points:

• Creating an automatic savings plan that channels money regularly to something like a high-yield savings account ensures you will save money before spending it.
• Use time and the power of compound interest to grow your money over the long haul.
• Also: A high-yield savings account is a great home for your emergency fund, but not for longer-term goals like your retirement nest egg. (Sponsored)

Understanding High-Yield Savings Accounts

First, it’s essential to understand what high-yield savings accounts offer. Unlike traditional savings accounts, high-yield accounts provide significantly higher interest rates. This means your money grows at a faster rate over time due to compound interest. These accounts are often provided by online banks, which have lower overhead costs, allowing them to offer better rates. While these rates can fluctuate, the general principle remains that they far exceed the national average for savings accounts.

Next, understand their purpose, too. These are for short-term savings goals, not long-term investments. While an HYSA can be a good place to park money before you invest, particularly after two straight years of 20% or better returns by the market, an HYSA can earn 4% or more safely, earn other bonuses, and offer liquidity.

Setting Up Automatic Transfers

The cornerstone of automated savings is setting up regular, automatic transfers from your primary checking account to your high-yield savings account.

Choose the right account. Research and select a high-yield savings account from a reputable online bank or financial institution. Look for one that not only offers a high Annual Percentage Yield (APY) but also has low or no fees, no minimum balance requirements, and FDIC insurance for security.

Link your accounts. Once you’ve opened your HYSA, link it to your checking account. This can usually be done through the bank’s online platform, where you’ll enter your checking account details for direct deposit or automatic transfers.

Determine your savings amount. A common approach is to save a percentage of your income every month, say 10% or 20%, but it should be an amount you can commit to without straining your monthly budget. Use tools like budget apps to assess what you can realistically save.

Set up the automatic transfer. Configure your bank to automatically transfer this amount from your checking to your savings account. This can be set for a specific day each month, or even more frequently if you prefer, like bi-weekly to coincide with your paycheck.

Leverage the Power of Compound Interest

Albert Einstein once called compound interest “the Eighth Wonder of the World.” The magic of high-yield savings lies in compound interest. Here’s how to make it work for you.

Frequency of compounding. Check how often interest is compounded — daily, monthly, or quarterly. The more frequently compounding occurs, the more your money will grow because each interest payment itself earns interest in the next period.

Reinvesting interest. Ensure that the interest earned is automatically reinvested back into the account. This is usually the default setting, but it’s good to confirm.

Monitor and adjust. Over time, as your income increases or as you become more accustomed to saving, you can adjust the amount you auto-save. Personal finance guru Suze Orman says you should learn to “get as much pleasure out of saving as you do spending.” Increasing your savings rate when possible can significantly boost your long-term growth.

Key takeaway

Automating your savings into a high-yield savings account disciplines your spending and sets the stage for significant financial growth over time. By making saving effortless and leveraging the power of compound interest, you can cultivate a robust financial future, ensuring that your money works for you even when you’re not actively thinking about it.