PAC in banking stands for Pre-Authorized Contribution. It's an arrangement where you authorize automatic deductions from your bank account (savings or checking) at predetermined intervals (e.g., weekly, bi-weekly, monthly) and in fixed amounts, which are then deposited into another account, typically an investment account.
Key Features of Pre-Authorized Contributions (PACs)
- Automated Savings: PACs automate the savings process, making it easier to consistently save money without manual intervention.
- Regular Investments: By regularly investing through PACs, you can take advantage of dollar-cost averaging, which involves purchasing more shares when prices are low and fewer shares when prices are high. Over time, this can help to reduce the average cost per share.
- Convenience: PACs offer a convenient way to save and invest, as the transactions are processed automatically.
- Flexibility: While the amounts and intervals are fixed, you typically have the flexibility to adjust or cancel the PAC as needed. Contact your bank or financial institution for details on how to modify your PAC.
- Control: You retain control over the amount saved and the frequency of deductions.
- Discipline: PACs help instill financial discipline by making saving a consistent habit.
Example of a PAC
Let's say you want to save \$200 per month for retirement. You can set up a PAC to automatically transfer \$200 from your checking account to your Registered Retirement Savings Plan (RRSP) on the 15th of each month.
Benefits of Using PACs
- Consistent Savings: Encourages consistent saving habits.
- Dollar-Cost Averaging: Reduces risk by averaging out the purchase price of investments over time.
- Convenience: Eliminates the need to manually transfer funds.
- Financial Discipline: Promotes financial discipline.
Pre-Authorized Contributions are a powerful tool for building wealth and achieving financial goals through automated and consistent savings.
