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Behavioral Finance

What Are The Most Effective Auto-Deposit Settings?

Choosing the right deposit strategy is an important step towards helping you reach your goals. We recommend setting up your auto-deposits so that they occur right after each paycheck.

Articles by Bobby Glotfelty

By Bobby Glotfelty
Licensed Financial Professional, Betterment  |  Published: June 5, 2019

We’ll tell you how much you need to save per month in order to help reach your goals.

Consider setting up your auto-deposits for the next business day after you get paid.

You’ve set up your account, prioritized your financial goals, and you’ve linked your checking account. Now you’re ready to start making deposits.

Automating your deposits helps you to “pay yourself first” by quickly separating your savings and spending money. It also reduces the amount of idle cash you hold, which could be earning more value if it was invested. More importantly, regular deposits help protect you from trying to attempt the impossible: effectively timing the market.

Deposit Types

There are many ways you can deposit into your Betterment account. You can make a one-time deposit, you can set up recurring auto-deposits, and you can even allow us to manage your extra cash by using Two-Way Sweep to invest it into your Smart Saver.

One-Time Deposit

A one-time deposit is an ad-hoc type of deposit where you choose a specific dollar amount to transfer from your checking account to any of your investment goals at Betterment. They can work well when you have cash on hand that you’re ready to invest, right now. A major downside of a one-time deposit is that you must initiate it manually. You’ll need to log in to your account every time you want to make a deposit. Even though we have a convenient mobile app for both iPhone and Android, we know you’re busy and likely have a lot on your to-do list already.

Two-Way Sweep

Two-Way Sweep is specifically designed to make your life easier by automatically transferring money back and forth between your checking account and your Smart Saver goal as needed.

First, we’ll monitor your spending patterns and provide you with advice on what to do with any extra cash. Then, we’ll seamlessly transfer your cash back and forth between your checking account and Smart Saver, depending on where it’s needed most. Money transferred to Smart Saver is invested, so keep in mind that it takes 4 to 5 business days to arrive in your bank account after a transfer is initiated.

Auto-Deposits

Auto-deposits eliminate the manual process required for a one-time deposit, and instead, allows you to schedule recurring future deposits for a specific dollar value. The set amount will be transferred from your bank account on a repeating frequency that you designate—either weekly, every other week, monthly, or on two set dates per month, making it a great option for anyone who likes to know exactly how much will be transferred and when, on an ongoing basis. Auto-deposits, which help you stay on track, are the preferred deposit method for any of your goals besides Smart Saver, which also has the Two-Way Sweep deposit option.

What are the most effective auto-deposit settings?

The most behaviorally effective auto-deposit strategy is to set up your auto-deposits so that they occur right after each paycheck. Choosing the day after you get paid as your auto-deposit date allows time for your paycheck to completely settle in your bank account before we start the transfer to Betterment.

The principle of having auto-deposits set up for right after you get paid is something you actually may already be doing in your employer-sponsored 401(k) account. Your 401(k) contributions come right out of your paycheck, and never actually reaches your bank account.

With other investment accounts that aren’t provided to you by your employer, like IRAs or individual taxable accounts, it’s generally not possible to move money directly from your paycheck to those investment accounts. Instead, the next best thing you can do is to schedule auto-deposits for the day after your paycheck hits your bank account.

Optimize Timing

You may have heard of the saying “pay yourself first” when it comes to saving money. Setting up your auto-deposits for right after you get paid allows you to do this by separating your paycheck into two categories: savings and spending. From a behavior standpoint, this protects you from yourself. Your paycheck is immediately going towards your financial goals first, and any leftover cash in your checking account can then be used for your other spending needs.

Avoid Idle Cash

Delaying your deposits for any period of time after you get paid allows your cash to sit in your checking account—which can be problematic.

Cash that sits in your bank account is likely earning either no interest or very little interest at best. This means that over time, your cash is effectively losing value due to inflation. Letting the cash sit in your bank account may also tempt you to try to time the market, which might lead you to ultimately hold on to your cash for even longer because of market activity. Not investing that cash could cause you to miss out on dividend payments or coupon income events that you otherwise would have received.

Reduce Taxes

Another perk of using auto-deposits is that they can help keep your tax bill low. Regular and frequent deposits and dividends help us rebalance your portfolio more tax-efficiently, which keeps you at the appropriate risk level without realizing unnecessary capital gains taxes. We do this by using the incoming cash to buy investments in asset classes that you might be underweight in, instead of selling investments in asset classes that you’re overweight in. Even little amounts help, because we can use those small amounts to invest in fractions of investments.

How much should I deposit into each goal?

Not sure how much you should be saving in each of your goals per month? We’ll tell you. You can see our recommendations on the Plan tab of each of your goals. We’ll calculate how much you should be saving towards each goal using information such as how much you already have saved, how long you’ll be saving for, and the expected growth rate of your investments. For more information on how our recommendations are determined, please see our goal projection and advice methodology.

Ready to put your savings on auto-pilot?

If you’re already a customer, setting up your preferred deposit type is easy. On a web browser, simply head to New Transfers and choose the deposit option. If you’re using the mobile app, simply log in and choose the Deposit button that will appear at the bottom of the screen.

If you have any questions about how to schedule your auto-deposits, we have a team of customer experience associates available to help with any questions or concerns you may have.

Automate your savings

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