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Who doesn’t want to save more money? But as common a goal as this may be, it’s hard to achieve. Lack of time, focus, and funds can all play a role. Which is why automating your savings — meaning the endeavor is taken off your plate and happens like clockwork — can be a very helpful tactic.

Saving money is important on so many levels, from building up a healthy emergency fund to having a retirement nest egg. And it seems as if Americans could use some help in this pursuit. The personal savings rate in the U.S. was 4.10% at the end of 2023, which is less than half what it was a couple of years prior.

Automating your savings could help change that. Read on to learn:

•   Why automating savings can be such a good idea

•   How to automate savings nine different ways

Why Automating Savings Makes Sense

When people say one thing and then do another, it’s called the value-action gap or intentional-behavior gap. Psychologists have lots of theories about why this disconnect exists.

When it comes to saving money, lots of things can get in the way: routine bills, an unexpected big night out with friends, a shopping splurge, or simply forgetting to move money into savings.

But by taking some of the human element out of saving money and using an automatic savings technique, it may be possible to overcome some of the obstacles that make it hard for people to save.

Automating your finances also reduces the amount of time you have to spend each month on tasks like paying bills and other aspects of routine cash management. And it helps you sidestep procrastination and instant gratification, which can be powerful forces to overcome — and often stand in the way of growing savings.

9 Ways to Automate Savings

How to automate savings? Simply decide which actions to automate and set them up with a lender (if they offer automated services).

Here are some good ways to get started.

1. Set Up Direct Deposit

A good first step to automating savings is setting up direct deposit for paychecks. This means that on payday, your paycheck goes directly into the bank account. People often plunk their full paycheck into their checking account, but a smart move can be to send some of those funds into a savings vehicle.

•   Whether you fund a dedicated savings account or investment fund, this process will ensure a regular, ongoing flow of money to help you build a nest egg.

•   If your employer doesn’t have a way for you to divide your automatic deposit, there’s a simple workaround: Have your paycheck go into your checking account and then have a sum automatically transferred to savings on the next day.

2. Earmark Money for Each Goal

There are a lot of things people can choose to do with their money. Most people have more than one savings goal, from accumulating cash for a vacation, a new car, or the down payment on a home.

If all of your money goes into a single savings account, it can be difficult to determine how effectively they are tracking for each individual goal. You can gain financial clarity by setting up separate savings accounts for each goal and then making regular automated deposits into each.

How much should go into each savings account? That depends on your goals and the immediacy of each. If you’re saving for a vacation a year from now, figure out the price tag for your trip, divide by 12, and that’s how much to stash away each month.

Recommended: How to Calculate Savings Account Interest

3. Choose a High-Interest Account

Saving can be hard work. But without the right savings account, those hard-earned dollars may not go as far as they potentially could. Instead of putting money in just any account, look for a high-interest savings account to increase the returns of your automated savings.

There are different ways to earn more interest on your money.

•   Some lenders may reward automatic savers, helping them to reach their goals faster. For example, a recurring automated deposit of $100 may earn interest at a lower starting rate, but increasing that deposit to $500 each month may trigger a higher rate.

•   Or look for an online bank which, since they don’t have to pay for brick-and-mortar locations and in-person staff, typically pay higher rates than traditional banks.

4. Take Advantage of Employer Programs

For those who have savings for retirement among their financial goals, employers can be a great savings partner. Those with a 401(k) may want to arrange automatic paycheck deductions, so the contribution comes out of your pay before it even lands in their bank account.

Some companies will also match 401(k) contributions up to a certain level each year. Aim to earmark at least enough to get that match; otherwise, it’s akin to leaving money on the table. It’s an easy way to increase retirement savings.

Recommended: 15 Creative Ways to Save Money

5. Pay Bills Automatically

The late fees associated with missing a bill payment needlessly take a bite out of savings. So if you’re trying to save money, ensuring that all payments go out on time is an easy way to reduce losses that can derail a savings plan. A few pointers:

•   Organizing your bills is important, but you don’t need a great memory to stay on top of rent, car, and utility payments — these can usually be done automatically. It makes sense to automate predictable billings that don’t fluctuate each month. Set them up in the payment system, and rest assured they’ll be paid by the due date as long as adequate funds are available.

•   For credit card bills, it’s good to ensure that spending habits don’t exceed the amount flowing into the account from paychecks and other sources.

•   If you spend more in a particular month, it’s wise to check in advance of the payment date that there are sufficient funds to cover the automatic payment.

•   Setting up a calendar alert each month several days before the credit card payment date is a good reminder to make sure there’s enough money to cover the amount owed, particularly if your credit card spending habits are irregular.

6. Monitor Financial Insights

Setting — and sticking to — a budget is an important part of successful financial management. But it can be a lot of work to monitor spending in each category and to stay on the right side of all targets.

Here’s where technology can definitely give you a boost. Instead of crunching the numbers week after week and month after month, apps and other digital tools can improve the ease of fulfilling this important, but arguably boring, mathematical task.

Your bank may well offer an automated tool or dashboard that shows in real-time your spending and saving. This means you can see account balances and itemized spending category breakdowns to have a clear picture of where your money goes and where you might cut back.

Some banks also allow account holders to set up personal financial goals — such as monthly savings targets — and then automatically track their transactions against them. This can be helpful when you are trying to boost savings and your sense of financial security.

7. Increase Deposits Over Time

While learning how to automate savings can take the headache out of managing finances, it’s wise to revisit the amounts periodically. Cash flows change from time to time (you get a raise, you pay off a car loan, you have a baby), and there may be new opportunities to save.

Even if nothing of note has changed, some individuals may find that they have more room to contribute to savings than they estimated at the outset. Even increasing automated savings by 1% per paycheck can help savings grow faster.

Setting a periodic automatic calendar reminder to closely review finances (perhaps every quarter) can be a wise move.

8. Use a Cash-Back Card

If you have a cash-back credit card, you may typically use that 1% to 5% back on purchases to… purchase more. Instead, direct your cash-back rewards into a savings account. Whether you get $10, $100, or more in cash back per month, it will help your savings account grow.

9. Funnel Your Windfalls Wisely

If you get a tax refund or a bonus at work, send that money into savings (or at least some of it) versus checking. Sure, it’s fun to get an infusion of cash and go shopping or dining out, but you can hit those financial goals more quickly if you send the money straight to savings, where it can earn compound interest and grow.

The Takeaway

Automating your savings can help ease your path to reaching your financial goals, from saving for a wedding to nurturing a retirement nest egg. This process is quick and convenient, and doesn’t require you to remember regular money transfers nor break out the calculator to see where you stand financially. Finding a savings account with a competitive interest rate and low or no fees can help your savings grow even faster.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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What Is an IPO?

An IPO, or initial public offering, refers to privately owned companies selling shares of the business to the general public for the first time.

“Going public” has benefits: It can boost a company’s profile, bring prestige to the management team, and raise cash that can be used for expanding the business.

But there are downsides to going public as well. The IPO process can be costly and time-consuming, and subject the business to a high level of scrutiny.

How Do IPOs Work?

To have an IPO, a company must file a prospectus with the SEC. The company will use the prospectus to solicit investors, and it includes key information like the terms of the securities offered and the business’s overall financial condition.

Behind the scenes, companies typically hire investment bankers and lawyers to help them with the IPO process. The investment bankers act as underwriters, or buyers of the shares from the company before transferring them to the public market. The underwriters at the investment bank help the company determine the offering price, the number of shares that will be offered, and other relevant details.

The company will also apply to list their stock on one of the different stock exchanges, like the New York Stock Exchange or Nasdaq Stock Exchange.

IPO Price vs Opening Price

The IPO price is the price at which shares of a company are set before they are sold on a stock exchange. As soon as markets open and the stock is actively traded, that price begins to go up or down depending on consumer demand, which is known as the opening price.

💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

History of IPOs

While there are some indications that shares of businesses were traded during the Roman Republic, the first modern IPO is widely considered to have been offered by the Dutch East India Company in the early 1600s. In general, the Dutch are credited with inventing the stock exchange, with shares of the Dutch East India Company being the sole company trading in Amsterdam for many years.

In the U.S., Bank of North America conducted the first American IPO, which likely took place in 1783. A report claims investors hiding cash in carriages evaded British soldiers to buy shares of the first American IPO.

Henry Goldman led investment bank Goldman Sachs’ first IPO — United Cigar Manufacturers Co. — in 1906, pioneering a new way of valuing companies. A challenge for retail companies at the time was that they lacked hard assets, as other big businesses like railroads had at the time. Goldman pushed to value companies based on their income or earnings, which remains a key part of IPO valuations today.

Why Does A Company IPO, or “Go Public”?

Defining what an IPO is doesn’t explain why a company “goes public” — an important detail in the process. Because an IPO requires a significant amount of time and resources, a business probably has good reason to go through the trouble.

Raising Money

A common reason is to raise capital (money) for possible expansion. Prior to an IPO, a private company may procure funding through angel investors, venture capitalists, private investors, and so on.

A company may reach a size where it is no longer able to procure enough capital from these sources to fund further expansion. Offering sales of stock to the public may allow a company to access this rapid influx of investment capital.


💡 Quick Tip: Keen to invest in an IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

Exit Opportunity

An IPO may be a way for early stakeholders, such as angel investors and venture-capital firms, to cash out of their holdings. Venture-capital firms in particular have their own investors that need to provide returns for. IPOs are a way for them to transfer their share of a private company by selling their equity to public investors.

More Liquidity

Venture-capital firms and angel investors aren’t the only ones who may be seeking more liquidity for stakes in companies. Liquidity refers to the ease with which an investor can sell an asset. Stocks tend to be much more liquid assets than private-company stakes.

Hence, employees with equity options can also use IPOs as a way to gain more liquidity for their holdings, although they are usually subject to lock-up periods.

Publicity

From the roadshow that investment banks hold to inform potential investors about the company to when executives may ring the opening bell at a stock exchange, an IPO can bring out greater publicity for a company.

Being listed as a public company also exposes a business to a wider variety of investors, allowing the business to obtain more name recognition.

Pros and Cons of an IPO

As with any business decision, there are downsides and risks to going public that should be considered in conjunction with the potential benefits. Here’s a look at a few:

Participating in an IPO: 3 Steps to Buying IPO Stock

1. Read the Prospectus

IPOs can be hard to analyze: It’s difficult to learn much about a company going public for the first time. There’s not a lot of information floating around beforehand since when companies are private, they don’t really have to disclose any earnings with the SEC. Before an IPO, you can look at two documents to get information about the company: Form S-1 and the red herring prospectus.

2. Find Brokerage

If you want to purchase shares of a stock in an IPO, you’ll most commonly have to go through a broker. Some firms also let you buy shares at the offering price as opposed to the trading price once the stock is on the public market.

3. Request Shares

Once a brokerage account is set up, you can let your broker know electronically or over the phone how many shares of what stock you’d like to buy and what order type. The broker will execute the trade for you, usually for a fee, although many online brokerages now offer zero commission trading.

Who Can Buy IPO Stock?

Not everyone has the ability to buy shares at the IPO price. When a company wants to go public, they typically hire an underwriter — an investment bank — that structures the IPO and drums up interest among investors. The underwriter acquires shares of the company and sets a price for them based on how much money the company wants to raise and how much demand they think there is for the stock.

The underwriter will likely offer IPO shares to its institutional investors, and it may reserve some for other people close to the company. The company wants these initial shareholders to remain invested for the long-term and tries to avoid allocating to those who may want to sell right after a first-day pop in the share price.

Investment banks go through a relatively complicated process in part to help them avoid some of the risks associated with a company going public for the first time. It’s possible that the IPO could become oversubscribed, e.g when there are more buyers lined up for the stock at the IPO price than there are actual shares.

When Can You Sell IPO Stock?

Shortly after a company’s IPO there may be a period in which its stock price experiences a downturn as a result of the lock-up period ending.

The IPO lock-up period is a restriction placed upon investors who acquired company stock before it went public that keeps them from selling their shares for a certain period of time after the IPO. The lock-up period typically ranges from 90 to 180 days. It’s meant to prevent too many shares in the early days of the IPO from flooding the market and driving prices down.

However, once the period is over, it can be a bit of a free-for-all as early investors cash in on their stocks. It may be worth waiting for this period to pass before buying shares in a newly public company.

Things to Know Before Investing in an IPO

An IPO, by definition, gives the investing public an opportunity to own the stock of a newly public company. However, the SEC warns that IPOs can be risky and speculative investments.

IPO Market Price

To understand why investing in an IPO can be risky, it is helpful to know that the business valuation and offering price have not been determined not by the market forces of supply and demand, as is the case for stocks trading openly in a market exchange.

Instead, the offering price is usually determined by the company and the underwriters who negotiate a price based on an often-competing set of interests of involved parties.

Post-IPO Trading

Purchasing shares in the market immediately following an IPO can also be risky. Underwriters may do what they can to buoy the trading price initially, keeping it from falling too far below the offering price.

Meanwhile, IPO lock-up periods may stop early investors and company executives from cashing out immediately after the offering. The concern to investors is what happens to the price once this support ends.

Data from Dealogic shows that since 2010, a quarter of U.S. IPOs have seen losses after their first day.

IPO Due Diligence

Investors with the option to invest in an IPO should do so only after having conducted their due diligence. The SEC states that “being well informed is critical in deciding whether to invest. Therefore, it is important to review the prospectus and ask questions when researching an IPO.”

Investors should receive a copy of the prospectus before their broker confirms the sale. To read the prospectus before then, check with the company’s most recent registration statement on EDGAR, the SEC’s public filing system.

IPO Alternatives

Since the heady days of the dot-com bubble, when many new companies were going public, startups have become more disgruntled with the traditional IPO process. Some of these businesses often complain that the IPO model can be time-consuming and expensive.

Particularly in Silicon Valley, the U.S. startup capital, many companies are taking longer to go public. Hence, the emergence of so many unicorn companies — businesses with valuations of $1 billion or greater.

In recent years, alternatives to the traditional IPO process have also emerged. Here’s a closer look at some of them.

Recommended: Guide to Tech IPOs

Direct Listings

In direct listings, private companies skip the process of hiring an investment bank as an underwriter. A bank may still offer advice to the company, but their role tends to be smaller. Instead, the private company relies on an auction system by the stock exchange to set their IPO price.

Companies with bigger name brands that don’t need the roadshows tend to pick the direct-listing route.

SPACs

Special purpose acquisition companies or SPACs have become another common way to go public. With SPACs, a blank-check company is listed on the public stock market.

These businesses typically have no operations, but instead a “sponsor” pledges to seek a private company to buy. Once a private-company target is found, it merges with the SPAC, going public in the process.

SPACs are often a speedier way to go public. They became wildly popular in 2020 and 2021 as many famous sponsors launched SPACs.

Crowdfunding

Crowdfunding is collecting small amounts of money from a bigger group of individuals. The advent of social media and digital platforms have expanded the possibilities for crowdfunding.

The Takeaway

Initial public offerings or IPOs are a key part of U.S. capital markets, allowing private businesses to enter the world’s biggest public market. Conducting an IPO is a multi-step, expensive process for private companies but allows them to significantly expand their reach when it comes to fundraising, liquidity and brand recognition.

For investors, buying an IPO stock can be tempting because of the potential of getting in on a company’s growth early and benefiting from its expansion. However, it’s important to know that many IPO stocks also tend to be untested, meaning their businesses are newer and less stable, and that the stock price can fluctuate — creating considerable risk for investors.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Explore the IPO Series:

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What Is the IPO Process?

What Are IPO Proceeds?

IPO vs Acquisition: Advantages and Disadvantages

How Are IPO Prices Set?

What Is an IPO Underwriter and What Do They Do?

What Is an IPO Roadshow?

How Many Companies IPO Per Year? 2023 Trends

What Is a Quiet Period?

What Is IPO Subscription Status?

Navigating the IPO Lock-up Period

What Is IPO Due Diligence?

How to Find Upcoming IPO Stocks Before Listing Day

What Is an IPO Pop?

What to Do With Company Stock If Your Company Goes Public

IPO Book-Building Process Explained

Hot Issues (IPOs): What You Need to Know

What Is Pre-IPO Placement?

Do IPOs Offer Dividends?

Testing the Waters: What It Means in an IPO

Testing the Waters: What It Means in an IPO

Shorting an IPO: When Can You Do It?

Guide to the Dual-Track Process for IPOs

What Is Gross Spread?

IPO Oversubscription: Definition & Examples

A Guide to Tech IPOs

History of IPOs That Failed

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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.