We hear the catchy jingles all of the time on the radio from Bank of America, Wachovia, and others. So, I figured it was about time to devote a blog post to evaluating these programs in general and performing a comparison to see which program comes out ahead!
Let’s get started.
Comparison of Bank Savings Programs
- Bank of America’s Keep the Change program – Bank of America – Keep the Change
- The Keep the Change program works as follows: each time you make a purchase with your debit card, the balance is rounded up to the next dollar, and the difference is transferred from your checking account to your savings account.
- For the first 3 months after you sign up, Bank of America matches 100% of the fractional Dollar amounts transferred to your savings account. After that, Bank of America matches 5%, up to an annual maximum match of $250.
- Bank of America does not offer a promotional APY interest rate for signing up for an account.
- It is also important to note that the matches are only paid once per year (we have to keep Time Value of Money in mind)
- Wachovia’s Way to Save program – Wachovia – Way to Save Account
- For every purchase that you make with your debit card and for every automatic bill payment, the program automatically transfers $1 from your checking account to your savings account.
- After the first year of opening the account, Wachovia will give you a one time bonus of 5% of your savings account balance, up to an amount of $300.
- Offers a promotional 5% APY interest rate for the deposit balance during the 1st year of signing up.
Now that we have the specifics of the details of each program, let’s now go through a scenario to see which program comes out to be a better deal. To view the scenario analysis, click on the Google Docs link below to access the spreadsheet I created.
In this analysis, we’ll assume that a person, Joe, makes one purchase every day for two years in $0.01 increments between $1 and $2. We will then analyze the follow characteristics that would result at the end of the two year period using Bank of America’s Keep the Change program and then using Wachovia’s Way to Save program
1) The total account value
2) The total amount of free money (either from interest or matched by the programs) the Joe would receive.
Note: These calculations do not include the regular interest rate received as part of the savings account used. However, promotional interest rates are included.
By examining the spreadsheet’s calculations, we see that Bank of America’s Keep the Change program yields approximately 3X more free money ($65 vs. $19 with Wachovia’s Way to Save program), mainly resulting from the 100% match during the 1st 3 months that the account is open.
However, we also see that the total savings account value is approximately 1.7X greater with Wachovia’s program than with Bank of America’s. This is mainly due to the $1 increments that are transferred from your checking account no matter what value purchase you make.
Do I Use These Programs?
The short answer to this is “no.” I do not use these types of programs for several reasons.
- I like to be in total control over every Dollar (and fractional Dollar) I invest and save. I do not like the idea of quantities being subtracted out of my checking account without me being the direct (even though it is for a good cause) initiator. I do not mind this for expenses such as rent and internet bills, but it is different when it is something related to my savings goals.
- I feel like these programs are great for people who seem to have trouble saving money. In my case, since I am already saving approximately 50-60% of my income, it really isn’t too much of an issue.
- The interest rates associated with Wachovia’s and Bank of America’s savings accounts are very low (0.1%) when compared to the high yield money market savings account I use (Dollarsavingsdirect.com – currently at 1.30% interest rate, see the following link for additional information My Money Blog – Savings Account Options)
- I prefer to use my Chase FreedomSM or Chase BP Gas cash-back credit cards for all of my purchases. With these cards, I get anywhere from 1-5% cash back for all purchases. (see the following link for details My Money Blog – Favorite Cash Back Credit Cards). With a debit card, I don’t receive any cash back benefits.
Will I Start Using These Programs After Doing This Analysis?
The short answer to this question, unfortunately, is also “no.” By running a quick calculation, I found out that by using my cash back credit cards, I would get $21 in free money simply by making the 2 years of purchases in the spreadsheet. This fact, along with the other resignations described above, are not, in my opinion, worth the hassle of using a different debit card for all of my purchases.
After studying these more in-depth, I definitely have a greater appreciation for how they work. Even though they are not the best fit for my situation, I am convinced that they are VERY useful for many people. I will keep them in mind as a option for recommending to friends that are looking for a good savings instrument.
Keep on learning!
To receive updates on topics such as this one as soon as they are published, click on the link below to subscribe to My Money Blog: