The era of the digital piggy bank: is the good old jar becoming obsolete?

Almost every bank in Estonia now has a solution that allows you to round the amount to the full euro when paying by card and transfer the difference directly to your Savings Account. It is also known worldwide as ‘round-up savings’ or ‘roundups’. The solution works like a piggy bank of the digital age – small sums of money will lead to considerable savings over time. How much money can you really put aside in this way and how can you make it work best for you?

‘Saving requires a certain amount of determination and self-discipline – everyone would like to save to feel more secure in uncertain times, but we don’t always succeed. The beauty of an automated system lies in the fact that the sums are barely noticeable to the wallet, but the habit is formed as if by itself,’ explains Annika Goroško, Head of Retail Banking at LHV Pank.

According to her, over 35,000 people have joined the LHV Savings Account solution during the year: ‘We see that almost 40% of account holders have switched on micro-saving, i.e. rounding of card payment cents, which means that if a person's invoice in a shop is, for example, EUR 5.65 euros, then 35 cents are automatically transferred to the Savings Account. Over 3.4 million transactions were made during the year and an average of EUR 215 euros accumulated in the customer’s account. However, there were also customers who managed to set aside as much as EUR 4,500 euros through micro-saving’, Goroško said.

The goal supports motivation

One of the basic rules of financial wisdom says that saving becomes easier and more permanent when you set a specific and realistic goal for yourself. When money is raised for a bigger purpose, such as travelling, down payment on a new home, or creating a peace of mind fund, it’s easier to stick to your plan.

Modern banking solutions also offer the possibility to add a goal to the Savings Account and monitor its fulfilment in real time. The most popular months for setting goals are December, June, and August, symbolising the beginning of a new year, season or academic year.

‘Most often, the goal is to create a peace of mind fund, which is a wise approach, as it provides certainty in case of unexpected expenses and potentially creates the basis for financial freedom’, said Goroško. ‘According to statistics, this goal is the most popular among 27-year-old women and 34-year-old men’.

In addition, Estonians save for travelling, buying a home or car, studying, improving health or simply shopping. ‘There are no right and wrong priorities. The ability to save and use money for its intended purpose is important. We can see that there are users of the solution of all ages: the youngest is less than a year old, for whom a parent is saving and the oldest is 101 years old. However, the solution is most popular among young people, especially those aged 25’, said Goroško.

How to increase your deposits?

Although many customers use the Savings Account through automated micro-saving and standing orders, statistics show that the biggest deposits are still made manually.

‘It is very easy to set up a monthly automatic payment in the account immediately on the day you receive your salary, and to transfer any funds left before the next payday or any unexpected income. In the bank app, it is a few taps away and there is no need to open a separate savings account’, explained Goroško.

Deposit solutions can be different: the main difference between the Savings Account and a term deposit, for example, is that money can be withdrawn from the Savings Account immediately or the next day. This can be done in part or in full, without cancelling the contract. While interest rates may seem modest at first glance, they still help to reach the target faster. Take, for example, saving for a deposit to purchase a home: buying a one-bedroom apartment in Tallinn in good condition for EUR 120,000 requires a 15 % down payment of EUR 18,000. If you save EUR 285 a month in the Savings Account, then with 2% interest, the necessary amount will accumulate in five years. Without interest, however, the target would be reached with the same payment three months later.

6 tips on how to get the most out of your Savings Account

1. Create habit and consistency
In addition to saving cents on your account with each purchase, set aside a fixed amount each month. This can be EUR 5, 25 or 300 – consistency is the key. Small amounts lead to a habit; big steps accelerate the achievement of the goal. A good tip is to also direct small unspent expenses to the Savings Account – for example, money from coffee or pastries you did not buy.

2. Pay yourself first
Consider directing the money towards securing your future on your payday, and only then covering other expenses. If you direct money to your Savings Account automatically, you won’t be tempted to spend it first. Automated standing orders also help to create discipline and simplify saving.

3. Extraordinary income
Make it a rule that if you receive any extraordinary income, such as performance pay, income tax refund or some other income, you transfer at least some of it directly to your Savings Account.

4. Keep your savings apart from your daily expenses
The big advantage of the Savings Account is flexibility and the ability to withdraw money immediately. Make an agreement with yourself that this money is not just for splurging, but for extraordinary expenses or for the realisation of a specific goal.

5. Set a goal and enjoy success
If saving for a deposit on a home seems like an unattainable dream, research shows that saving can be addictive in a positive way. Watching money grow rather than shrink all the time also creates a small sense of success, which contributes to improving your quality of life.

6. Use interest wisely
Take a closer look at the benefits of your LHV services. For example, the interest rate for LHV Premium customers is always higher, so you will also earn higher interest income on a larger amount.