How Payroll Deduction Schemes Increases Your Financial Wellbeing

Payroll deductions schemes have been around for over 30 years within the UK and has been a great way for employees to save or repay their loans stress free.

How Does It Work?

The scheme is very simple – your employer partners with a payroll deduction scheme provider (such as a Credit Union) and every month you set with the payroll scheme provider how much you wish to save (or repay on your loan).

The payroll scheme provider will send your payroll department a schedule with how much is to be deducted from your salary. This deducted amount will go straight to paying into your savings or to pay off your loan. This will show on your payslip.

It is essentially the same as how your pension works. 

How It Benefits You?

Through my work at credit unions one thing that I found how these schemes particularly helped people was building up their savings unconsciously. Many forget or do not realise how small contributions (such as £50 per month) can add up at the end of the year or when they need a little extra cash (in this case they would have £600 at the end of the year). By saving little but regularly, without even thinking, allows you to be sure that you have a cushion.

Additionally although you can change the amount you save every month or repay your loan from your salary, the risk to payroll deduction scheme lenders will be lower to lend you money. As such, the interest on loans tend to be significantly lower than on comparable loan products. This can allow you to build your credit rating, without needing to spend a lot on credit. Again this saves you money that you can use for further savings (in fact many credit unions even have a Save While You Borrow scheme, making it even easier to save).

MoneySmrt Tip

My MoneySmrt Tip is that you should first seek out and join your local credit union. By joining your local credit union you can benefit from both the payroll deductions scheme and the savings while you borrow scheme to maximise the amount of money you save – even if you have taken out a loan. 

In fact imagine having £600 spare by the end of the year, just by savings £50 per month! You will be able to use this to go on holiday, buy a car or treat your loved ones – all without doing anything other than initially joining a credit union that has this scheme.