“Keep the Change” from Bank of America: Can change add up to savings?
‘œWith our national savings rate well below one-percent, it is imperative that the government embrace innovative and cost-effective means of boosting personal savings.’ ‘“ Jim Cooper
In December, I interviewed Liz Rizzo, a contributing editor for the Sex & Relationship category at BlogHer about her rapport with money. She lives in Los Angeles, aims to direct television and has an interesting money story. Like most Hollywood aspirants she’s trying to get by on a budget and pave her way to success in LA. I learned during the interview that she has a ‘œKeep the Change‘ savings account from Bank of America:
Whenever I use my debit card, they round up the charge to my checking, and put the ‘œchange’ into my savings. So finally I have money in a traditional savings account, which is meant to hold my two months living expenses, but so far I’ve found myself transferring the money back into my checking account every couple months because something’s come up. So I still don’t have that savings.
Until Liz, I hadn’t heard about this promotion from BofA. When it was first introduced, Ryan at 37 Signals offered up this explanation:
So, if you buy a sandwich for $4.50 with your BofA debit card, you are actually charged $5.00, but the change is deposited in your savings account. So, $4.50 for the sandwich and $0.50 for savings. Basically they’re rounding up and refunding the change to your savings account instead of back to your checking account.
His short post spawned 139 comments’¦ primarily because he compared it to Coinstar. Who knew that so many people had an opinion about this?
About.com answers the question if this is a good deal or not. For Liz, it seems to work and I’m all about playing a few mind games to get me to save. What about you? Or do you have any general comments about the dismal savings rate in America?
The LA Times has an article about a similar program from Wachovia. If you normally keep your account on the edge, the rounding can be problematic. I have to say that I think the big problem is actually that they will permit an overdraft to go through on a debit card.
In general I’m a big fan of auto-withdrawals from my checking account. I take out about 13% of my salary for my 401(k), which is long term savings right there. When I was better off financially, I also took a few hundred dollars a month out of checking and put it into my Fidelity money market. I find it is too easy to move money between checking and savings accounts in the same bank. Even though it is a fairly straightforward electronic transfer, moving money back from Fidelity into my checking account feels like a bigger deal, so I’m less inclined to do it.
They tried to upsell me the program when I went in because I didn’t have a savings. The 250$ would be nice but not as nice as reward points from my credit card. And the interest rate was pretty weak.
Most of my savings started out as change I kept, rather than spent and it was a good plan at the time. The money seems trivial to me now but the habits I got from doing that keep me increasing that savings today.
Larry: I missed that LA Times article a few weeks back so thanks for mentioning. I’ve highlighted Wachovia’s program here in case the link requires logging in:
Re: Auto-withdrawals – I remember my first financial planner (in my early twenties) inspired me to auto-deduct $25 from my checking account every month and put in savings. It’s a habit that has stuck with me over the years… and yes, the monthly amount deducted has increased considerably.
Mike: I agree that loose change seems trivial but it’s the mindset behind the savings that creates life long habits.