NEW YORK – Americans are saving less money than they ever have in modern times. The personal savings rate plummeted to -1.5 percent in the second quarter of 2006 — the lowest it has been since the Great Depression. So when Bank of America unveiled its "Keep the Change" savings program last year, many consumers saw it as a painless way to increase their personal savings.
Here's how the program works: Every time you buy something with your Bank of America Visa Check Card, your purchase is rounded up to the nearest dollar amount, and the difference is transferred from your checking to your savings account. For example, if you buy a sandwich for $4.25, you'll be docked $5, with the extra 75 cents deposited into your savings account at the end of the day.
And, for the first three months you're enrolled in the program, BoA will match your savings at 100%. After that, BoA continues to match at 5 percent a year.
"Keep the Change" is approaching its one-year anniversary this month, and Bank of America is satisfied with its first-year performance. The program has attracted 3 million customers thus far, generating more than 1 million new checking accounts and more than 1.5 million new savings accounts.
But here's what consumers need to know:
The Bank of America (BAC) savings accounts offer an abysmally low APR of 0.50 percent, so you're not going to make much on your investment. Bank of America will only give you a maximum of $250 a year in matching funds. And the match money isn't deposited daily; Bank of America rewards it annually, so you earn no compounding interest. The fine print in the "Keep the Change" agreement says that "Fees could reduce earnings." Some merchants charge a fee for using a debit card; if they do, the rounded-up amount you save could actually be less than merchant fees, so you may lose money. And remember, if the balance in your savings account dips below the minimum required, you may be charged for that as well.
Some consumer advocates believe that such programs actually result in higher prices for ordinary items because they encourage consumers to increase debit-card usage. Since merchants must pay banks' point-of-sale fees on debit card purchases, they are likely to pass the cost onto consumers. The winner? Bank of America, of course.
Bank of America media relations representative Diane Wagner, however, said she had never heard of such criticism. "It's the customer's preference of how they prefer to do business with merchants," she said. Wagner said the bank's customers have told it they wanted help saving. "We're obviously meeting a need."
But if you're really serious about saving, you're better off depositing your money into an account that that offers you a higher yield.
Copyright (c) 2006 MarketWatch, Inc.