Automating your savings can significantly boost your financial growth. By directing a portion of your direct deposit into a high-yield savings account or investment account, you can effortlessly build your savings. This approach allows you to allocate part of your paycheck for everyday expenses and bills, while the rest goes into an account that helps you save more effectively.

For instance, if you’re focusing on building an emergency fund, you can set up automatic transfers to a high-yield savings account. This way, your money earns more interest, accelerating the growth of your fund.

Whether you choose to save a percentage of your paycheck or a fixed amount each pay period, automating your transfers makes it easy to grow your savings without having to think about it. “Without even thinking about it, without lifting a finger, it’s being set aside,” says Jane Larimer, president and CEO of the National Automated Clearing House Association. “It’s that easy. And I think sometimes people think, ‘Well if I only have a few dollars, why do it?’ Well, a few dollars adds up over time.”

How to set up a split deposit

Here’s how to get started with split direct deposit:

  1. Check with Your Employer: Verify if your employer offers split direct deposit by contacting your payroll department or logging into your payroll provider’s website. Look for options related to changing your bank elections or adding/editing your accounts. Some employers may require you to fill out a form.
  2. Choose Your Allocation: Decide whether you want to divide your paycheck by percentage or by a specific dollar amount.
  3. Encourage Your Employer: If split direct deposit isn’t available, suggest it to your employer. Sometimes, they need employee requests to consider implementing the option, as noted by Jane Larimer, president and CEO of the National Automated Clearing House Association.
  4. Set Up Recurring Transfers: If split deposit is not an option, you can manually achieve the same result by setting up automatic transfers from your checking to your savings account through your bank.
  5. Consider Manual Deposits: If your checking and savings accounts are with the same bank, you can deposit most of your paycheck into checking and a portion into savings. If they are with different banks, set up recurring transfers to move funds from your checking account to your high-yield savings account.

Having a savings account is a great start, but ensure it offers a competitive yield, especially when rates are high and inflation is outpacing returns. This way, your money is working as effectively as possible for you.

Most consumers need the extra savings

The situation might be even more dire. According to a Federal Reserve study released in May 2022, 37 percent of U.S. households would struggle to pay a $400 emergency with cash or cash equivalents.

Jane Larimer points out that even a modest split deposit of $20 from each paycheck can make a significant impact. For workers paid bi-monthly, this amounts to $480 in a year—excluding interest—which would help you stay above the threshold set by the Federal Reserve study.

Starting to save may feel slow at first, says Lauren Zangardi Haynes, CIMA, a certified financial planner at Spark Financial Advisors. “Initially, it may seem like you’re not making progress,” she notes. “But with consistent effort, you’ll see substantial improvement by the end of the year, and you’ll no longer be part of that statistic struggling to cover a $400 emergency.”

Haynes adds that many people feel there’s no room in their budget for savings, but often, we’re more adaptable with our spending than we realize. “We tend to underestimate our ability to adjust our expenses,” she says.

Split deposit and your tax refund

Just like with your paycheck, you can have the IRS deposit your federal tax refund into multiple bank accounts. This option allows you to allocate part of your refund to a savings account, helping you start or grow your emergency fund. The IRS permits you to split your refund among up to three accounts, across three different U.S. financial institutions.