Many convenience stores use drop safes to prevent burglaries. A drop safe allows money to easily be deposited, but not easily withdrawn. A cashier might deposit a set amount of cash into the drop safe once the register hits a certain limit. Doing so keeps the unprotected amount (in the register) small while allowing the protected amount (in the drop safe) to grow. Applying the concept of a drop safe to your financial plan can help you to save.

The idea of a drop safe is useful, but as we rarely want our savings to be sitting in cash, a “virtual” drop safe is more appropriate. Just like it’s real world counterpart, we want it to be easy to put money into and hard to get it out of. As in the convenience store case, the reason to use a drop safe is to protect your money from being stolen. In the case of your personal finances, you are trying to protect your money from yourself, and your desire to spend. Some examples of virtual drop safe accounts include IRAs and 401(k)s, CDs, or structured investments like P2P loans. Let’s look at one of those examples, the CD, to see how it would work.

A CD works like a drop safe because it’s easy to put money in, but you can’t get your money back out until some future date. The returns on that investment tend to be better than a traditional savings account as a result of this loss of liquidity. Even in the case of CDs though, you can pay a penalty if you really need to get the money back out. Similar provisions tend to exist in retirement accounts as well.

If you are going to cave in and break into your virtual drop safe by paying a penalty, save yourself the trouble and expense and don’t bother trying to save in this way. If you are disciplined, then using a virtual drop safe may not be necessary at all. Most of us fall somewhere in between those two cases. For us, the hurdles of getting money out of a virtual drop safe account may be all the incentive we need to keep that money in there and allow it to really grow.

Even a minor inconvenience may be sufficient to dissuade taking money out. I use a direct bank account (HSBC Direct) because it offers a better rate than CDs, while still being fairly liquid. The fact that it takes a few days to transfer money out of the account is the deterrent that helps me to save. Even though it’s not much of a hassle to get money out, the minor inconvenience is enough that I rarely withdraw from that account. For me, direct banking offers the perfect balance of deterrent, liquidity, and return on investment that I’m looking for.

Another great virtual drop safe, that I mentioned above, is a P2P loan portfolio. Using my Lending Club account, I get a great return on my money, while only allowing myself access to a small fraction of it each month. Loans on Lending Club are repaid monthly and have a term of 36 months. So I basically can only access 1/36th of the money that I have invested there at a time. Most months I just roll the payments I receive into new loans so that the interest I earn can compound. If you are interested in opening an account with Lending Club, use this referral link.

Whichever method of virtual drop safe you implement, the goal is the same: place a barrier between your income and your desire to spend. Saving not only causes you to spend less, it also allows your money to work for you by earning interest. Passive income such as this is really helpful in not only reaching your financial goals, but also allowing you to have enough free time to enjoy those goals once they are achieved.