Saving for a car involves first calculating the total amount of money needed, minus any loans, and breaking that amount down into monthly amounts to be saved. That amount gets deducted from your monthly income and transferred into a saving account.
One of the most important considerations when saving to purchase a car is whether to take out an auto loan. Loans can help to cover the initial down payment and reduce the number or amount of subsequent monthly payments. However, loans must be repaid to the bank and accumulate interest, resulting in repaying an amount larger than what was borrowed. The decision made about a loan will determine how much money needs to be saved each month.
Once the monthly savings amount is determined, it is time to choose a savings method. Most checking accounts come with a free savings account that features automatic monthly transfers. This is an easy way to automate the savings and ensure that no transfers are forgotten. Some online-only banks offer savings accounts with a higher interest rate. This means that each month, the bank will pay the account holder for saving with them in form of a small percent of the current balance.