Given the choice between immediate gratification and saving for the future, many people opt for acquiring a flat screen TV or buying a new wardrobe, leaving savings for tomorrow. Often tomorrow never comes. Consumers who are having difficulty saving may find relief in an often overlooked financial product: the automatic savings plan. (For related reading, also check out 5 Ways To Trick Yourself Into Saving Money.)


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What Is an Automatic Savings Plan?
Automatic savings plans are easy to arrange and can be opened at the major money-center banks, community and regional banks, credit unions, and via mutual funds. Consumers can typically save as little as $10 or more a month or a percentage of their salary and have that money automatically deposited into a savings, checking, money market account or mutual fund, among several investments.

The Benefits
Financial planners have noted several benefits to automatic savings. Most of all, it provides consumers with a disciplined, guaranteed way to save. Consumers don't have to worry about budgeting a certain amount to save monthly and can't be tempted by spending the allocated money on the latest fashion or consumer gadget.

Automatic savings encourages people to save a set amount annually and have it grow. Saving $200 or $300 a month sounds modest, but at the end of the year that nest egg accumulates into $2,400 or $3,600 and in 10 years it builds to $24,000 or $36,000 not including interest. This is not a get rich quick plan, but a gradual way to save money that builds over time.

Unlike 401(k)s and IRAs, most automatic deposits into savings or investment accounts are liquid; funds can be withdrawn if an emergency arises, and, in most cases, without penalty.

An Additional Savings Tool
For many people opening an automatic savings plan is an add-on to a 401(K) plan, but for others it can serve as a start to an investment or retirement strategy. Investments in 401(k)s are tax-deferred while automatic deposits into savings accounts aren't.

Ironically, the people who need to save the most - those in debt or with minimal savings - are often the most reluctant to launch it. They're afraid to relinquish $200 a month and would rather spend the money. But a guaranteed savings plan can serve as a first step to lift people out of debt, create financial discipline in a consumer's life and launch an action plan to build retirement income.

Seeing money grow can be an incentive to save more. Consumers who save $500 a month see their money accumulate to $6,000 a year and $12,000 or more after two years. As a result, they save more and spend less.

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Some Questions to Ask
Consumers need to ask questions when opening an automatic savings plan. Are there any annual fees (most banks don't charge any, but you need to ask) or a charge for terminating the plan? Can it be tied into interest-bearing accounts? Many consumers tie these plans into automatically deposited salaries and then transfer the funds into a money market or mutual fund.

Also keep in mind that if the automated savings plan is tied into a mutual fund, there is risk involved because the mutual fund can decline in value.

Accounts Can Generate Moderate Interest
For savvy consumers, automated savings can be tied into investment checking accounts, which provide modest interest, typically in the range of 0.25% to 0.75%, or can be tied into more risky exchange-traded funds (ETF), which operates like a diversified mutual fund. (For more on ETFs, see 4 ETF Strategies For A Down Market.)

Automated savings can be a helpful tool to lift people out of debt and into the asset column. Before opening one, consumers are advised to analyze their budget, pare down debts, build minimal savings, and then it may be time to open an account. While many investments are aimed at affluent people, automated savings plan can appeal to working class or middle class consumers who want to take control of their money and start savings.

Find out what happened in financial news this week. Read Water Cooler Finance: Insiders, Door Busters And Debt Contagion.

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