Can you really save by spending? Several card issuers believe it's possible, and they've issued the plastic to prove it.
Spurred on by reports of record low savings rates and consumer feedback that they're interested in putting more money aside for rainy days, several card issuers have introduced credit or debit cards that have a savings component.
"I think what makes it notable is
that we're in an environment right now where there's
been a lot of attention focused on the lack of savings,"
says Lynne Strang, spokeswoman for the American Financial
Services Association, a trade group for credit and financial
institutions. "We're not saving enough."
With these new credit cards, a certain
percentage of what cardholders spend is deposited into
the user's savings account. It's similar to a rewards
card, but in this case the reward is money in the bank
instead of airline tickets or travel points.
"It's a means to put something away
for bigger-picture items," Strang says.
Monica Beaupre, spokeswoman for American
Express, which launched its version -- the One Card
-- in October 2005, agrees. "We wanted to be able
to offer consumers who weren't sure how to kick-start
that savings plan a way to do that," says Beaupre.
One Card users get back 1 percent of the
amount of their purchases ($1 for every $100 spent).
It is deposited into a savings account with a 4.25 percent
annual yield, she says. The company also puts in $25
the first time the account holder uses the card and
suspends the annual $35 fee for the first year. Cardholders
can add to the savings account as they wish. The interest
earned is a variable rate so it will change periodically.
The accounts are insured by the Federal Deposit Insurance
Emigrant Bank also offers a card for customers
who have a savings account with its online division,
EmigrantDirect.com. With Emigrant's card, the reward
depends on the balance of the account. If the account
holders have less than $10,000, they receive deposits
twice a year equal to one-half of 1 percent of their
total card purchases for the past six months. If the
balance is $10,000 or higher, the users receive 1.4
percent of their purchase totals. The money goes into
a savings account currently offering a 5.15 percent
"It's encouraging them to keep their money in the savings account," says Janet Martin, chief administrative officer of Emigrant Bank. "If someone had $8,000, we've seen them put that extra $2,000 in."
On the debit card side, Bank of America
launched its "Keep the Change" program at
roughly the same time. When a consumer uses the card,
the total purchase amount is rounded up to the next
highest dollar, and the difference between that and
the actual cost is swept into a savings account. For
the first three months, Bank of America matches the
savings dollar for dollar. After 90 days, it matches
"It's been a very successful program,"
says Diane Wagner, spokeswoman for Bank of America.
As of August 2006, 3 million customers saved an average
of $60 each, not including the matching money, Wagner
says. "It gets you into the habit. If you're spending,
you can also be saving."
Over the long term
Can you save by spending? Opinions are mixed. While
some contend that it's a great way to save almost invisibly
while you do what you normally do, others worry that
consumers will spend more to get more savings and just
dig themselves deeper into debt.
"I really like these types of accounts," says Curtis Arnold, founder of CardRatings.com, who estimates that there are probably about 50 cards on the market that offer some type of savings option. While some will set money aside in a 529 (education savings account), others "will let you put money in a high-yield savings account or even a brokerage account," he says. "It just depends on what you want."
Two he likes: the Citi Upromise Platinum
Select MasterCard, which is tied to a 529 account, and
the Fidelity Investment Rewards Visa card, which can
be linked to several types of investment accounts, including
brokerage accounts or IRAs.