Automatic withdrawal can refer to fixed payments from mutual fund dividends or the transfer of funds between accounts. The latter is commonly used for bill payments or saving money, but users must ensure there is enough money in their account to avoid overdraft fees. Authorization can be done through release forms or in-person visits to the bank.
There are two main definitions of an automatic withdrawal. The first is an agreement within a mutual fund program, in which the investor or shareholder chooses to receive fixed monthly or quarterly payments, which come from the dividends of their investments. The second type of automatic withdrawal is the automatic transfer of money from one account to another; that is, from a person’s checking account to a company that pays a bill, or from one’s checking account to a savings account. This second definition is the subject of this article.
One of the most common uses for an automatic withdrawal is to set up an automatic monthly bill payment. The client authorizes the company to access their bank account and withdraw funds, which can be done once a month or biweekly, in order to pay an invoice. The withdrawal amount can be a fixed amount, like a mortgage or car payment, or it can vary from month to month, like a phone or electric bill.
When setting up automatic bill payment with a business, it’s especially important to remember that even if the business makes a mistake one month and charges too much on a bill, that amount will be withdrawn automatically. The downside of this is that you need to have a certain amount of buffer in the current account, in case an error occurs. This will avoid any overdraft fees. Please note that user error is also possible, and it is the account holder’s responsibility to ensure that there is enough money in an account to cover withdrawals.
Another way to use automatic withdrawal is with a savings account. One could choose to have a certain amount withdrawn from a checking account on a certain day each month, or even after each paycheck, and deposited into a savings account. Some people find it much easier to save money this way, when it’s an automatic process. Automatic deposits and withdrawals can also be useful for retirement and investment accounts. Most banks allow users to set up automatic transfers between accounts at any time they choose.
To set up automatic withdrawal for bill payments, it’s usually possible to simply authorize a company directly to take the money each month by signing a release form. When setting up automatic transfers between accounts, it may be necessary to visit the bank in person. Using automatic withdrawals can save time by eliminating time spent writing checks or mailing bills, but be sure to carefully track the amount being withdrawn and any fees assessed to avoid wasting money or overpaying.
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