Bank Cards Offer Deposits to Savings Accounts for Naive

Bank of America and American Express have been banging their respective drums this week about their cards that allegedly help consumers save. While neither company is doing anything illegal, shady or deceptive, what they are doing is contrary to simple common sense. Under their programs, the more one spends the bigger one’s savings account gets. But the savings account will get bigger faster if one simply doesn’t spend in the first place.

Bank of America unveiled a “Keep the Change” feature on its debit cards on Wednesday. What happens is the bank rounds up any amount charged to the debit card to the nearest dollar, and puts the pennies it took to effect the rounding into a savings account. For the first three months a person has the card, BofA will match 100% of the rounded cents. After that, a 5% match is offered, and the whole thing is capped at $250 a year.

American Express is offering a different scheme to those with its American Express One credit card. The company will put 1% of the purchase price of goods and services charged into a savings account at 3.15% interest. The $35 annual fee is waived the first year, which means this might be a good deal for 12 months, but after that, it becomes dicier. If one spends $3,500 in the second year, it’s a break even proposition.

Financial institutions don’t make profits by giving money away, so there must be something in it for them. And sure enough, the whole idea is to get rid of checks. Banks have to pay when a check used for a purchase. But according to David Robertson of The Nilson Report, a newsletter in the payments industry, signing for debit purchases brings in money -- 98 cents for each $100 spent, $1.44 for $100 of credit card purchases. With that much coming in and no check fees involved, BofA can afford to match customers’ rounded cents.

However, there is a sense that this is a case of any port in a storm. The Bureau of Economic Analysis, part of the US Department of Commerce, says that US personal savings as a percentage of disposable income for June, July and August entered negative territory. If these card programs can turn a nation of spenders into a nation of spenders with a tiny savings account, it can only help. But wouldn’t it be better for every American merely to put away $10 a week? Easy to say when one isn’t earning the $5.15 an hour – the federally mandated minimum. Maybe the savings rate is so low because the price of labor relative to the price of capital has dropped in the last few decades.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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