Round-ups are a feature offered by some financial services companies in which each time a customer makes a transaction, that amount is rounded up to the nearest dollar, and the change is deposited into a savings or investment account.
Once upon a time, people saved up their spare change in jars, cashing their coins in for a tidy sum once the jar was full.
And while the notion of that old coin jar may seem quaint now, there’s a new cashless version of that old tradition. It’s called round-ups.
The theory behind coin jars is as simple as can be.
Back when cash and coins were the most standard form of payment, savers would accumulate change throughout the day—paying for their morning coffee, buying lunch, or making other small routine purchases.
At the end of the day, they’d empty their pockets of coins and deposit all that loose change into a jar, where it would accumulate over time into a more sizable sum.
Once the jar was full, that money would be deposited into a savings account.
How Does Round-Up Savings Work?
Much like the cash jars of yore, round-up savings are also based on the principle that small amounts of money can add up to big savings over time.
For example, let’s say a round-up user makes a purchase for $28.15. If they were paying with cash, they’d have 85 cents remaining in change. With round-ups, the financial institution rounds up the value of the transaction and transfers those 85 cents into a savings account.
With some providers, these small amounts of change accrue and then are deposited into the user’s account in a lump sum.
With others, the funds may be deposited as soon as the transaction settles.
Who Offers Round-Up Savings?
Some bank accounts and debit card products offer round-ups for transactions. Not all financial institutions offer round-ups, so if the notion sounds like the right tactic to help an individual save, consider investigating whether the feature is offered before deciding where to open an account.
There are also standalone round-up apps, which users can connect to a credit card or bank account.
The app then monitors transactions and either transfers the proceeds of round-ups in batches or allows users to transfer money on demand.
Some standalone round-up apps also charge a monthly user fee.
In such cases, consider the monthly volume of transactions to make sure the cost doesn’t exceed the amount of money round-ups will help to accrue for savings.
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Round-Up Savings Can Add Up
While saving 85 cents may not sound like much, any jar saver who ever went to the bank with $100 in change will attest that putting away small amounts can add up fast.
For example, saving just five extra dollars a week in round-ups adds up to $260 over the course of the year. This may not sound like a lot of money to save in total, but it can provide a nice boost to augment a more intentional savings strategy.
And that’s not the full amount someone could gain from participating in a round-up program.
Just like other savings or investments, round-ups deposited into a savings or an investment account have the potential to earn interest.
If the proceeds of round-up purchases are deposited to a savings account on a regular basis, that spare change would grow—and could continue growing—each time interest compounds.
For round-up investing, those small savings can, over time, help in the purchase of additional shares which may also grow in value.
Reasons For Considering Round-up Savings
Many Americans have trouble saving money.
For example, more than a third of U.S. adults would not have the extra funds to cover an unexpected $400 expense , and a quarter of Americans don’t have any retirement savings.
There are lots of reasons people have trouble saving—and for some, setting up round-ups can help them consistently set money away without having to think about it.
This can help to eliminate some of the pain and effort of saving.
Round-ups Make Everyday Transactions More Rewarding
One reason round-ups can be a useful tool to help someone stick save is that round-ups help someone pay themselves with each transaction.
Kind of like tipping oneself, round-ups pay the saver a little something extra on their transactions, making everyday spending a little more rewarding.
Round-ups are Automatic
Part of why saving can feel painful is that it requires the saver to make difficult decisions on a regular basis.
Each time money is put into a savings or investment account, the individual must consciously choose to save over other possible expenditures, decide how much to put away, and actually remember to perform the funds transfer.
But once they’re set up, round-ups happen automatically—without requiring conscious sacrifice.
Automating personal finances can be a helpful tactic to keep everyday funds flowing, avoid late fees and other stresses, and encourage healthy habits.
When it comes to automating savings, round-ups are yet another tool that can assist consumers in putting away small amounts of money.
Round-ups Take Some of the Pain Out of Saving
Saving money can be hard emotionally. In addition to the reasons mentioned above, each time an individual makes the decision to save they’re putting their future goals ahead of immediate pleasure.
That may be rewarding in the long run, but saving also typically requires an individual to make some sacrifices now. But because round-ups transfer such small amounts to savings on each transaction, people may not even feel a pinch.
For those who are already putting money into savings on a regular basis, taking advantage of round-up features can help to grow that money more rapidly, putting the ability to achieve your savings goals within even closer reach.
Round-ups May Help Counter Savings Procrastination
While some people save early and often, others may put it off. There are lots of reasons for procrastinating on starting a savings plan.
For those in their 20s, for example, retirement or even things like starting a family and buying a house can seem a long way off. Meanwhile, there can be lots of temptation to spend now, especially for those earning entry-level salaries.
Round-ups can help motivate savings procrastinators by demonstrating the effects of putting money away on a regular basis.
For a new saver, watching their balance increase could be a strong motivator.
For those already saving, the excitement of watching their money grow could be an added incentive to earmark more funds for savings over time.
When to Have Caution
While benefits like automation and ease can make round-ups work for some people, there are some downsides to consider as well.
When opting into a round-up service, review the fees. Saving $5 a week seems grand, but if fees are going to chew out $2, is that worth it?
People who have a low balance in their checking account and may overdraft due to the automatic round-ups may also want to consider opting out of this feature.
Consider taking stock of your personal situation and reviewing program requirements before opting into anything.
Pay Yourself—Every Time
We know saving money can be hard work—but using round-ups can automate savings and eliminate some of the pain of growing your finances.
With a SoFi Checking and Savings®, online bank account, members can enroll in the Round-up program, so long as they have at least one Vault set up. Vaults allow users to save for different goals within the same account. With the round-up program, transactions will be rounded up to the nearest dollar and deposited into the Vault selected by the account holder. There are also no fees and it’s possible to earn cashback when you spend.
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