With Americans saving less than $2 for every $100 in earnings, Bank of America Corp. has unveiled a plan to make it easier — and potentially more rewarding — to start putting money aside.
The service dubbed “Keep the Change” allows customers to round up their debit card purchases to the nearest dollar and put the change into an interest-earning savings account.
For example, a debit card purchase of a sandwich and drink for $5.45 would be increased to $6, with the extra 55 cents going into the customer’s savings account.
“Our customers have told us they’re not saving the way they wish they were,” Diane Morais, senior vice president of deposits and debit products, said Tuesday.
“We designed a very simple way to do it with what they do every day,” she said. “It provides an easy way to save so they won’t miss it.”
To drum up interest in the “Keep the Change” program, the bank will match all contributions to the savings account for the first three months. After that, the bank will match 5 percent of the total. The matching funds would be credited annually.
Bank of America officials said no other major bank has a similar program.
Still, the proposal was met warily Tuesday by a consumer advocate.
“As for the consumer, I think the savings is diminished compared to how much more the bank will make in these transactions,” said Ed Mierzwinski, consumer program director for Washington, D.C.-based U.S. Public Interest Research Group. “They are trying to increase the use of debit cards to increase their profits.”
Bank stands to profit
Bank of America stands to profit by earning a fee for each transaction made with debit cards. Banks typically charge 1 percent to 2 percent of the purchase price for each debit card deal.
Mierzwinski said the bank is using the program to encourage more small purchases with the debit card, which could lead to higher prices for items ordinarily purchased with cash.
“If so, everyone will pay more for that cup of coffee because the stores will need to increase the price of their goods to overcome the fee increase,” he said.
Bank of American spokeswoman Tara Burke declined to comment Tuesday on Mierzwinski’s claim.
“The reason we introduced this was the voice of our customers and extensive research,” she said. “And we found they wanted it.”
The service is already available in most markets served by the Charlotte-based bank, one of the nation’s largest financial institutions. Bank of America officials say they believe it can help consumers build a tidy nest egg.
“We anticipate the average customer can save between $150 to $200 a year through this service,” Morais said, adding that so far customer response has been very positive. The bank declined to release the number of people enrolled in the program.
The bank has an annual cap of $250 for “Keep the Change” deposits. And the bank requires a minimum balance of $100 for a customer to obtain the service.
“It’s very simple and that’s the beauty of it,” Morais said. “It’s easy to understand and our customers get it immediately. And the response has been great.”
While the savings rate in the United States was as high as 11 percent in the post-World War II era, it has plummeted to less than 2 percent in recent years.
Morais said the program is not aimed at any particular type of customer.
“It has universal appeal,” she said. “Everyone wants to save money for their children’s education or for special purchases.”