Bank spurs an interest in saving

But ‘Keep the Change’ has also drawn critics

Save while you spend. Technically, it doesn’t make sense. How could you save money as you spend it? With the “Keep the Change” program, Bank of America offers an answer.

Launched last September, Keep the Change led to the opening of 400,000 new savings accounts and 250,000 checking accounts in its first four months alone (the bank has a total of 52 million savings and checking accounts). About 1.1 million bank customers have enrolled.

Here’s how it works: Every time an enrollee uses his Bank of America debit card, the charge (say $2.33) is rounded up to the nearest dollar ($3). The difference (67 cents) goes from his checking account into his savings account.

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For the first three months, the bank matches 100 percent of the amount transferred into the savings account – which would mean an extra 67 cents in the above example. After the three months, the bank’s match falls to 5 percent, with a maximum match of $250 per year.

“Our customers are telling us that they are looking for easier ways to save, and this is a fantastic product for them,” said Brian E. Young, consumer market executive for the bank’s Rhode Island operations.

The benefits to the bank are clear: to enroll in Keep the Change, a customer must have both a savings account and checking account. New accounts build up deposits.

Young noted that Keep the Change’s local enrollees are already racking up savings. Just months into the program, he said, accounts average $120 to $150 in savings for people who make between 25 and 30 charges per month.

“This is a time when… Americans and Rhode Islanders aren’t saving nearly enough money,” said Young. “This is just another way for Bank of America to really do its part in the community, to build those behaviors for our customers.”

Young has a point. The nation’s savings rate is at its lowest level since the Great Depression. The U.S. Bureau of Economic Analysis recently reported that the nation’s savings rate was negative 0.5 percent last year, meaning that people spent more than they earned after taxes.

Bank of America isn’t the only company using the savings pitch. American Express offers automatic savings through its “One” credit card. The company contributes 1 percent of all charges made with the card to a high-interest savings account, currently yielding 3.5 percent.

But despite their featured benefits, critics say the card programs actually cost businesses and consumers in the end.

“The short answer is that Bank of America is not an altruist. Bank of America wants to make as much money as it can,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Merchants pay banks and credit cards companies an “interchange fee” for debit and credit card purchases, typically 1 to 2 percent of the total charge – and sometimes more. As it is, debit card use has been rising sharply nationwide, and leading businesses to pay more interchange fees. Programs such as Keep the Change feed that trend.

And for banks and credit card companies, the National Retail Federation says, rising debit card use means billions of dollars in interchange fees. In 2005 alone, Bank of America reported a 32-percent jump in revenue from debit cards, due to a 29-percent increase in purchases.

How do these savings programs impact consumers? Mierzwinski said merchants often work interchange fees into the cost of their products. He added that American Express’ “One” card carries a $35 annual fee after the first year, meaning cardholders will have to charge $3,500 to earn enough incentive payments to break even.

No other banks in Rhode Island offer anything like Keep the Change, though several have programs to encourage savings, such as Citizens Bank’s “Steady Save,” which makes regular transfers from checking into savings accounts. Last year, the bank offered $25 in cash for new signups. Sovereign Bank and The Washington Trust Co. have programs to help customers save for a specific goal – a vacation, the holidays, a major purchase.
James V. DeRentis, executive vice president and chief business officer for Bank Rhode Island, said the bank has attracted new accounts and deposits through its “Custom Banking” product, which gives customers reduced rates on loans and higher yields on accounts if they have at least $5,000 in savings or an equal amount of debt with the bank.

BankRI isn’t doing anything like Keep the Change, however, because that encourages people to spend money to save money, he said, and “we look at that as kind of a mismatch.”

Elizabeth B. Eckel, executive vice president of marketing for Washington Trust, noted that her bank boosted deposits by 12 percent in 2005 without a program like Keep the Change. “We have done a great job,” she wrote, so they haven’t had to resort “to this type of promotional gimmick.”

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