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Bank of America Debit Card Turns Change into Savings

Posted on: Wednesday, 5 October 2005, 18:00 CDT

By Rick Rothacker, The Charlotte Observer, N.C.

Oct. 5--At a time when the nation's savings rate is near an all-time low, Bank of America Corp. is offering a new program that gives customers a nudge.

The Charlotte bank has launched a debit card feature that rounds up all purchases to the nearest dollar -- and automatically deposits the difference in a savings account.

As an extra incentive, the bank will match those savings deposits for the first three months. After that, it will pay 5 percent a year -- up to $250.

Called "Keep the Change," the program helps customers put away extra pennies while promoting debit card usage and bigger savings account balances for Bank of America.

The nation's No. 2 bank by assets started rolling out the program last week in markets nationwide, including Charlotte. The feature is optional for Bank of America's debit card holders.

As they pay for lattes, sandwiches and dry cleaning, customers could save $150 to $200 a year, the bank estimates.

"This is all about providing a compelling reason to use a debit card for everyday purchases and meeting savings needs along the way," said Diane Morais, deposit and debit products executive.

The program comes as Americans are putting less and less away for a rainy day. U.S. personal saving in August was negative 0.7 percent of disposable income, an improvement from negative 1.1 percent in July, according to the Commerce Department. In essence, that means Americans were spending more than their income.

Tony Plath, finance professor at UNC Charlotte, said the program helps address one of the most serious personal finance problems. "The way to start saving is to start small and watch it grow," he said.

Keep the Change is a new twist on frequent flier and other loyalty programs that encourage credit and debit card use, experts said. Charlotte rival Wachovia Corp. offers points for debit card use that can be redeemed for gift cards at restaurants and other retailers.

"It's all part of the ongoing battle not just to get customers but to keep them," said Bert Ely, an Alexandria, Va.-based banking consultant.

Banks also have an incentive to encourage customers to use debit cards, which draw money directly from a customer's account. Unlike with checks, they get merchant fees up to $1.35 per $100 transaction, said David Robertson, publisher of The Nilson Report, an industry newsletter.

With the new feature, Bank of America encourages customers to sock money away in savings accounts, which provide relatively cheap deposits that can be loaned out at higher rates, Plath said. The bank's regular savings account paid an annual percentage yield of 0.5 percent as of mid-August.

Bank of America has been developing the feature since late last year and has received good feedback in customer testing, said Morais, the bank executive. The program required a change to the bank's computer systems to allow for the rounding and transfer of funds.

The bank is seeking a patent, which would ward off competitors. A spokeswoman declined to comment further.

A promotional blitz this month at New York's Grand Central Station will feature a 9-foot-by-25-foot couch. Passersby can fish fake coins out of the cushions and turn them in for prizes.

HOW IT WORKS:

--Every time a customer uses a debit card, the bank rounds up the purchase to the nearest dollar -- and automatically deposits the difference in a savings account.

--The feature is optional.

--The bank will match the savings for the first three months. After that, it will pay 5 percent a year -- up to $250.

--The feature works whether the customer completes the transaction with a PIN or a signature.

--The bank transfers the savings at the end of the business day. The 5 percent match is rewarded annually.

--The program doesn't apply to some transactions, and money isn't transferred if an account is overdrawn.

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Copyright (c) 2005, The Charlotte Observer, N.C.

Distributed by Knight Ridder/Tribune Business News.

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BAC, WB,

Source: The Charlotte Observer (Charlotte, N.C.)

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