|Spend-to-save cards: Use with caution
Two major financial institutions are offering customers
a way to save money by spending money.
Sounds sort of like one of those ads that say you
can eat more and lose weight. There's little doubt that other banks
will jump on this bandwagon and offer similar programs. But will
customers really save money in a meaningful way, or will they just
pile on debt?
'Keep the Change'
Bank of America's "Keep the Change" offer
rounds up to the next whole dollar every purchase paid for with its debit card.
Spend $23.54 on groceries and your checking account statement will register a
$24 debit. The $0.46 difference is deposited electronically in a savings account.
Bank of America says it will match 100 percent of the deposits for the first three
months. After that, it will match 5 percent to a maximum of $250 annually.
of America spokeswoman Tara Murphy Burke says "Keep the Change" scored
highly with customers in a test run.
"We listened to our customers. We did research,
and they want a more-effective and easier way to save money, an
additional vehicle. With this they don't even have to think about
it -- it's done for them."
But customers had better be careful about balancing
the checkbook. Forget to round up those debits and you could eventually
overdraw your account. Bounce a check and the ensuing fee will offset
the match and the interest in your newfound savings account pretty
fast, unless you're spending beaucoup bucks.
Bank of America lets customers deposit the savings
in a regular savings account that currently pays 0.5 percent interest
or in a money market account currently paying 0.55 percent on balances
of less than $2,500; 0.6 percent on balances of $2,500 to $9,999;
and 1.5 percent on $10,000 to $24,999.
American Express trots 'One'
says it wants to help customers stash some cash with its "One"
credit cards. The company
will deposit an amount equal to 1 percent of your purchases into
a high-yield savings account currently paying 3.15 percent. The
savings account is at American Express Bank and can be accessed
online. Additionally, the company will contribute $25 to the account
with the first purchase.
Simran Kalra says the "One" account is for anyone looking to save money.
"These people may not be interested in spending
money on designer handbags or the best theatre seats. They may be
more interested in spending on home improvements. They know they
have to spend, but they also want more ways to save. It's another
egg in the basket."
Use with caution
in mind that the financial institutions are keeping some eggs, too. They earn
fees from retailers every time you use their cards; they'd probably be happy if
you used them with abandon. In addition, you'll pay interest on revolving debt
with the One card.
Consider this: American Express waives
its $35 annual fee the first year, but after that you'll need to spend $3,500
to work off that fee.
"With American Express you need to compare the
annual-fee card with a no-annual-fee card that has a 1-percent cash
rebate," says Gail Hillebrand, senior attorney with Consumers
Union. "The high interest savings versus regular savings won't
offset the $35 fee unless you spend a lot. As for the Bank of America
card, don't fool yourself into thinking that this is the way to
save. For real savings you need to set aside a specific amount every
pay period. Nickels and dimes won't do it."
To compare checking accounts (and their associated
ATM fees), use Bankrate's semiannual
checking study, and its credit
card search can help you find the card that's right for you.