February Challenge—Direct Deposit is a Mighty Tool
Sheila, from North Richmond Hills, Texas, and a member of American Airlines Federal Credit Union, sent us this idea for the Financial Fitness Challenge:
I get an investment check each month and immediately put it in my savings account at my credit union. Until I need to spend it for bills and so on, I leave it to draw the most dividends possible. Then I can transfer only what I need into my checking account to make my payments.
Save more each month
It's not magic--it's being consistent instead of random in your saving patterns. NACHA, the electronic payments association, Herndon, Va., surveyed 1,505 people by telephone. The survey revealed that those using direct deposit save $390 a month, $90 more than those saving manually.
At a 6% yield, those direct depositors could save an additional $22,867 in 10 years.
When you pair direct deposit with automated transfers from checking to savings, you really make progress, and most consumers recognize that: The Consumer Federation of America (CFA), Washington, D.C., and Wachovia released results of a survey of more than 2,000 adults and how they view their ability to save, major barriers to saving, and successful savings strategies. Among the successful tactics, automatic transfers from checking to savings or investments ranked high—75% said it is important, 48% said very important.
Each paper check costs the government 80 cents more to process than does an electronic deposit.
You may have heard about the 'Go Direct' campaign from the Treasury Department. It has one goal: To increase direct deposit use among today's Social Security recipients.
I was surprised to find out that among baby boomers, my own generation, one of four still gets paid with old-fashioned paper checks. With the big surge coming in baby boomer retirements, the Treasury Department is leading the effort to encourage them to choose direct deposit of paychecks now—in hopes that they'll be more likely to sign up for direct deposit once they start collecting Social Security benefits in retirement.
There are several good reasons to go direct. We've talked about the improved savings outcomes. Direct deposit is easier for consumers to use than paper checks, and it's safer. Paper checks can be stolen and forged and have a higher incidence of fraud.
Direct deposit also saves money for the issuer. Now, about 20% of Social Security and Supplemental Security Income checks are issued in paper form. As 70 million boomers make the transition to retirement, the costs of processing millions more checks will skyrocket unless those payments go via direct deposit. Each paper check costs the government 80 cents more to process than does an electronic deposit.
If everyone who gets a federal benefit check switched to direct deposit, it would save taxpayers millions of dollars each year. The money saved as a result of Go Direct will partially cover the costs of future Social Security payments—something we all are concerned about.
Those who use direct deposit save $90 more a month.
It's easy to sign up. Visit GoDirect.org or call 800-333-1795 for free direct deposit of your government check. And if you're still getting a paper paycheck, ask your employer about direct deposit.
2008 Financial Fitness Challenge
We're calling on you to help us with the 2008 Financial Fitness Challenge. Now it's your turn to share your best ideas for money management with others—winning recognition and maybe some money.
Submit your personal finance idea, as Sheila did, and become eligible for monthly prizes of $50 Visa gift cards—and a grand prize at the end of the year of $1,000.
Until next month ...
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