Saving in a low-yield world
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Spend-to-save accounts: helpful or hoax?

Instead of trying to save by spending, he advocates putting money into an account where the saver can't touch the money without paying a stiff penalty. Examples of such accounts include CDs, 401(k) plans or 529 plans.

"If you really want to build capital, put it where you can't spend it," he says.

“If you want something that makes it quick and easy, lets you fool yourself into thinking you're actually saving, (spend-to-save) programs are good.”

Davis also lauds programs like, which allows consumers to set up an account with a specific savings goal, calculate how much they'll need to contribute each month to make that goal, set up an automatic transfer from checking and even accept additional contributions from friends and family members who want to help.

"(SmartyPig) is the kind of program that focuses on changing consumer behavior rather than just transferring funds," says Davis, whose credit union offers a similar program to its members. "It's making savings automatic and it's getting people to talk about how to change their lifestyle to effectively save."

Back to basics

Jerrold Mundis, author of "How to Get Out of Debt, Stay Out of Debt, and Live Prosperously," says the very nature of spend-to-save programs encourages people to spend more than they save.

"The problem is that these programs want you to use your ATM card and practically every study indicates that people who pay for things with plastic will spend 10 (percent) to 15 percent more on everything than they would if they were using cash," Mundis says.

Instead of using spend-to-save programs to encourage savings, he advocates a more basic approach: keeping tabs of all expenses for at least 30 -- and ideally, 90 -- days.

"Usually that alone causes people to spend 5 (percent) to 10 percent less because it causes people to become more conscious about where the money is going," he says. "That's going to be much more effective in the long term."

Once consumers have a clearer idea of their money-flow, they can save additional cash by tightening up budget leaks and switching from plastic to cash.

Mundis adds that while spend-to-save programs tout how much consumers can pocket, they frequently obscure hidden costs such as monthly maintenance fees on savings accounts and annual fees on credit cards.

For example, to have the monthly $5 maintenance fee waived, Keep the Change requires customers to maintain a minimum daily balance of $300 or set up an automatic transfer of $25 from checking to savings each month. Although Way2Save has no minimum balance, it does require consumers after the first year to make a check card or online bill pay purchase at least once a month to avoid a $5 monthly maintenance charge.

Instead of looking at small, daily savings, Mundis encourages consumers to focus on financial vehicles that target long-term savings goals and provide high rates of return while continually building savings.

"That's preparing for the future and doing something that's going to make a real impact in the way of accumulating assets," he says. "It's an illusion to think you're going to build significant savings any other way."

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