What Are Automatic Savings and Investment Plans?

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What Are Automatic Savings and Investment Plans?

An automatic savings or investment plan is a plan that deposits money into one account from an existing account on a regular basis. It goes by other names, such as automatic withdrawal plan and automatic deduction plan. Generally, you choose the same date each month or week to have a set amount of money removed from your savings or checking account and deposited into the target account. The minimum allowed is usually $25, though it varies. In order to avoid overdraft charges from your bank or credit union, you must make sure you have enough in your account on the day that money is scheduled for withdrawal.

Ideal for saving

You can use automatic savings and investment plans to put money into any savings or investment accounts you may have. Saving accounts you may want to regularly add money to include a bank or credit union savings account, a bank money market account or an investment money market account.

They work for investing, too

Although you can use automatic plans to put money into other savings accounts that you may have, you can also use them to put money into an investment account, such as a mutual fund or stock, in which case the money taken out will be used to buy shares at the current market price. When you use an automatic investment account in this way, it works in a similar fashion to dollar cost averaging.

Some advantages of automatic plans

The advantage of an automatic plan is that it does the work of saving for you. Once it is established, you will begin building up funds without consciously deciding to do so. Another advantage is that it can circumvent the emotional difficulty of continuing to invest when there are losses in your portfolio; yet another is that, when stock or mutual fund prices are down, you are buying them at a more advantageous price, all done automatically.