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January 2012
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The Pros and Cons of Automatic Withdrawal
Things to consider before signing up

According to a June 2011 report from the United States Department of Labor, Americans typically spend more than two hours per day on household maintenance duties such as cleaning, cooking and financial management. One way to cut down the amount of time you spend on managing your household’s finances is to set up automatic withdrawals for your monthly bill payments and savings contributions. But before you do, consider the pros and cons:
 
Pros
  • Less credit card interest: Paying your credit card bills through automatic withdrawals can drastically reduce the amount of interest you pay on your balance if you can break your normal monthly payment down into weekly payments. This technique can also significantly reduce the amount you pay in home mortgage and auto loan interest and may even shorten the terms of your loans.
  • Increased savings: When you set up an automatic withdrawal from your checking account to your retirement and other savings accounts, you ensure that the transfer is made and that the money is saved, allowing it to accumulate over the years and ensuring tax deductions for retirement account or health savings contributions. As with the example above, if you make contributions weekly rather than monthly, you can make an even bigger difference in your money’s ability to grow.
  • Fewer late fees: If you set up your automatic withdrawals to occur well before your bills are due each month, you can ensure that late fees are not imposed as a result of simply forgetting to make payments. Not only does this protect your wallet, but it also preserves and improves your credit rating.
Cons
  • Lost interest: When you pay a bill by check, it takes time for the check to arrive by mail and for the company to cash it. Meanwhile, your money sits in your account earning additional interest. Paying your bills through automatic withdrawal often removes the money immediately.
  • Insufficient funds: If you do not have sufficient funds to pay an automatic withdrawal, the company that withdraws the funds may charge you a late fee for insufficient funds.
  • Loss of flexibility: When you pay your bills online or by check, you have control over how much you send and when you send it. Automatic withdrawals remove much of this month-to-month flexibility, since, in order to take effect, changes may have to be requested several weeks in advance of a due date.

There is no single method of paying bills that works for all consumers. If you aren’t sure which approach will work best for you, stop by. We will be happy to discuss the options available and work with you to help create a solution to your bill-paying concerns.


*Consult a tax advisor regarding any tax exemptions, deductibility, savings or any other tax-related opinion statements present.


If you should have any questions, please don't hesitate to call the Electronic Banking Department at 781-329-6700 ext. 201. 

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