Everything You Need To Know About Automatic Payments
January 13, 2025
What You Need to Know About Recurring Automatic Payments
Automatic payments have become a key part of financial management. By automating bill payments, many people find it easier to stay on top of recurring expenses. Whether it's utility bills, subscriptions, or loan payments, auto pay can help make sure you never miss a payment and save you money.
But it’s not always the right way to go. According to a study by Gies College of Business,[1] credit card borrowers using autopay tend to pay off 8–17% less of their balance compared to those making manual payments.
So, before jumping in, it’s important to understand how they work, the pros and cons, and the best practices for using automatic payments wisely. Here, we’ll walk you through everything you need to know.
What Are Automatic Payments?
Automatic payments or “auto pay” are recurring payments set up to be automatically deducted from your bank account, debit card, or credit card. Payments are scheduled at regular intervals, such as monthly, quarterly, or annually, depending on the agreement with the service provider.
This feature is commonly used for bills like:
Utility payments.
Insurance premiums.
Mortgage or rent.
Subscription services.
With automatic payments, you don’t need to manually make payments each time they’re due. Instead, the payment happens automatically.
You might also like: Walkthrough: Bill Pay On Mobile
How Automatic Payments Work
Setting up automatic payments typically involves linking your checking, savings, or credit card accounts to the service provider or vendor.
Here’s how you can usually do this:
Log in to your account on the provider’s website or app.
Find the service providers’ auto pay section.
Enter your payment details (bank account or credit card information).
Select your payment schedule (monthly, bi-weekly, etc.).
Confirm the arrangement with the provider to start the automatic deduction.
For smaller companies, you may need to call and set up auto pay over the phone. Once set up, the service may deduct the agreed amount from your linked account on the designated date. You’ll typically receive a notification or email to confirm the payment.
Recommended: Saving Money at Home: 15 Money Saving Tips to Cut Costs
What Is an Automatic Payment Rule?
An "automatic payment rule" is a pre-set instruction that allows a specific amount of money to be automatically withdrawn from your bank account on a scheduled date to pay a recurring bill, like a utility bill or loan payment, without you needing to manually initiate the transaction each time; essentially, it's a set of parameters defining when and how much should be automatically paid to a particular payee. For example, a payment of $150 monthly on the 6th to your cell phone provider.
The Pros of Using Automatic Payments
Automatic bill payment can come in handy with a few notable perks. It can be convenient, save you time, and help you avoid late fees.
Saves Time & Hassle
Automatic payments may make life easier as you won’t have to remember to manually pay each bill. Once set up, payments will process automatically. This can save you the hassle of logging into multiple accounts every month.
Instead of spending time each month processing payments, automatic payments can free up your time for other important tasks and activities.
Cuts Costs & Expenses
Many utility vendors and lenders offer discounts for using auto pay. For example, at Centier, you may be able to get an auto loan interest rate discount with auto pay. Also, mobile carriers may offer a set-rate per month auto pay discount on phone bills.
Check with your utility vendors, lenders, and credit card servicers to see if you can leverage incentives to save money using automatic payments.
Helps Avoid Late Fees
With automatic payments, you don’t have to worry about missing due dates, which can result in late fees. Timely payments can also help you maintain good standing with your creditors.
The Cons of Automatic Payments
As with all financial setups, automatic debit payments can also have some downsides. With auto pay, you may run the risk of unexpected overdrafts, miss unexpected charges, and lose manual oversight.
Potential Overdraft Risks
If you don’t keep track of your account balance, automatic payments can result in overdrafts and insufficient funds fees. If there’s not enough money in your checking account when the payment goes through, you may incur fees from your bank. So, make sure there are always enough funds in your account to pay upcoming bills.
May Miss Unexpected Charges
Automatic payments are great for regular, predictable bills, but they don’t always account for unexpected or variable charges. If a service provider changes your rate or adds extra fees, you may not notice until the payment goes through. Stay on top of accounts.
Lack of Manual Oversight Especially with Subscription Services
When payments are automated, it’s easy to forget about them altogether. Without reviewing bills regularly, you might miss price changes, subscription renewals, or unnecessary charges. These charges can add up without your knowledge if you don’t pay attention.
What Is the Safest Way To Set Up Automatic Payments?
To get the most from automatic payments:
Review your bank statements regularly.
Make sure you have sufficient funds.
Schedule payments around your pay cycle.
Take advantage of alerts and notifications.
Look into your overdraft protection options.
Even with automatic payments, check your bank or credit card statements regularly for changes in fees or unexpected charges. Make sure your account always has enough funds to cover payments. If possible, align payment dates with your payday. Set up reminders to alert you before payment dates — many banks and providers offer this feature. If possible, set up transfers from another account like a savings account to cover accidental overdrafts.
What Kind of Bills Should Not Go on Auto Pay From Your Bank?
What you need to know and consider is that bills with fluctuating amounts or optional expenses should not be set up on auto pay. For example, credit card bills you choose to pay in full may vary monthly. Automating these payments could strain your account if the balance is unexpectedly high.
You might also like: What’s the Best Way to Pay Down Credit Card Debt ASAP?
Set Up Auto Pay With Centier Bank
Automatic payments are an efficient and convenient way to manage your regular bills, expenses and cash. While auto pay can help you stay on top of payments and avoid late fees, it’s still important to monitor your accounts. When you set accounts up wisely and review your finances regularly, you can take full advantage of the convenience of automatic payments and avoid potential drawbacks. Be cautious about giving anyone your bank account information and authorization, and set up automatic debits directly with a trusted company. Contact us to learn how we can help.
Sources:
[1] https://giesbusiness.illinois.edu/news/2024/09/09/study--is-autopay-a-double-edged-sword
