By Kelli B. Grant
Question: I’m trying to stick to a budget and save money. Is it a good idea to have all of my bills automatically drafted out of my bank account?
Answer: It depends on the bills in question, as well as your bank. An automatic draft, which allows the company billing you to debit your checking account, can have a number of advantages over online bill pay, in which you set up a payment and instruct the bank to send it on your behalf.
Because the company pulls the money when it’s due, there’s less of a chance of missing an important bill, says Greg McBride, a senior financial analyst at Bankrate.com. For certain loans or debt payments, you may even get an interest rate deduction for setting up auto-pay, he says. Plus, a few banks still charge customers for using online bill pay features. “That’s a big advantage of automatic draft,” McBride says.
But automatic draft can also be a budget pitfall, particularly on bills that might vary from month to month like cellphone or electric. An unexpectedly high bill automatically drafted from your account could generate overdraft fees, which might be more expensive than paying a month’s worth of interest to carry a small balance on a credit card or loan.
For such variable bills, you might be better off setting up online bill pay, says McBride. Another option: many companies allow customers to make a payment via their own web sites. “That gives you more control over when and how payment is made,” he says.