Strategies for Building up Your Savings
People use many different methods to save. Some use automated savings plans or recurring transfers from their checking accounts to their savings accounts. Others pay themselves first by having their paychecks go into savings and then taking out only what they need. Still others keep a coin jar lying around to help them store their loose change. An example of this latter method is the Keep the Change program available to Bank of America customers.
The way Keep the Change works is that debit card purchases are rounded to the nearest dollar. The purchase still costs the same and the extra money gets transferred from your checking to your savings account. So buying a coffee for $1.79 would result in a $1.79 charge and a $0.21 transfer from checking to savings for a total transaction of $2.00.
The idea builds on the concept that these small amounts are rarely missed and add up over time. As an added incentive, Bank of America will match your transactions for the first three months, up to $250. After that, the bank gives you 5% of your transactions as a bonus for using the program.
When you consider that the average debit transaction is going to transfer fifty cents, you realize that to get the $250 bonus, you’d have to make around 500 debit transactions in the first three months. Keeping up that pace, which would take considerable effort, would only yield about $50 (from the 5% bonus) over the course of a year. While the initial matching is rather large, the subsequent bonus hardly seems worth the effort. For a much easier way to earn a 5% bonus, see the special lender program Lending Club currently has running for people who lend at least $5,000 in their P2P loan portfolios by February 3rd, 2008.
Using your debit card for the Keep the Change program is good in that you are not subject to interest rates as you would be with credit cards. There are issues with using debit cards, however. Overdraft fees and blocking are common complaints and liability for debit cards may be higher than for credit cards.
Are there better ways to save? For most people, yes there are. As I said in the opening, though, different people save in different ways. For people who regularly use their debit card and have trouble with saving methods that require more discipline, Keep the Change may be a viable savings option. Whatever method you choose, consider putting some of your savings to work through social lending on Lending Club, where you will earn better returns while helping others.