Can you save when you spend?
Lots of corporations think you can. There's a growing trend in corporate America of telling folks that if you're going to charge purchases on your credit card or use a debit card, you may as well save at the same time.
Bank of America has introduced a new program it says will help people save. The program is called "Keep the Change." Here's how it works: When you sign up for the program, every purchase made with a Bank of America debit card is automatically rounded up to the nearest dollar and the difference is transferred from your checking account into your savings account at the end of the day. There is no fee to participate in the program, but standard debit fees apply.
Let's say you use your debit card to buy lunch and the tab comes to $7.25. The bank would automatically transfer the difference between $7.25 and $8 -- 75 cents -- to your savings account. In addition, Bank of America will match 100 percent of such transfers for the first three months you're in the program. After that, the bank will contribute 5 percent a year for a maximum of $250 a year. The bank pays the rewards annually.
Diane Morais, deposits and debit products executive at Bank of America, said customers should think of the program as if it were "an electronic change jar." You can turn those everyday purchases for groceries, gas and meals into a simple way to save, she said in a release announcing the bank program.
In one of my online discussions, one reader asked: "I recently saw an ad for a credit card that puts 1 percent of what you charge on it into a savings account. I currently have one credit card through my bank that doesn't offer any perks. I don't use my credit card very often and can pay my balance off every month. Is it worth it to get this new credit card and charge a lot of my everyday expenses (groceries, gym membership, clothes, etc.) on it to create a new savings account? The card has a $35-a-year fee, but the fee is waived for the first year."
The ad this person was talking about is for American Express's new "One" card. The card carries a feature that enables consumers to save automatically with every purchase. American Express contributes 1 percent of a card member's purchases into an FDIC-insured savings account. The interest-bearing savings account has no cap on how much a consumer can earn. There are no monthly fees or minimum balance requirements. The annual percentage yield on the card is currently 3.5 (at least as of last Wednesday).
"Also, we make our contribution monthly so the savings grows and adds up faster than if it was a quarterly or yearly contribution," said Desiree Fish, a spokeswoman for American Express.
Here's the company's bottom-line pitch for the One card: "Let's face it, some people are better at spending money than saving it. But with One from American Express, everyone can save easily and automatically."
Not a bad advertising appeal. However, keep in mind that in Year 2 of owning the card, you'll have to spend $3,500 to make up for the $35 annual fee, given that the rebate is 1 percent. But hey, after that you are saving every time you spend.
There are other spend-and-save programs. For example, one popular program is Upromise. In this one, when people spend money with participating businesses a certain percentage of their purchases is deposited into a tax-advantaged 529 college savings plan.
So are these programs a good deal?
I would be hard-pressed to criticize any setup that helps people save. Even a tiny bank account can come in handy when times get tough. If you've been able to accumulate money from making purchases on your American Express card and you lose your job, that cash could pay a couple of bills. You would be grateful for that.
And clearly we're not a nation of savers. According to the Commerce Department, the national personal savings rate now stands at a negative 0.7 percent of disposable income. Far too many people are spending more than they earn.
However, I'm concerned that people will become too comfortable with these corporate gimmicky ways to save. And no matter how financially disciplined you are, there is a tendency to spend more when you use plastic.
Believe it or not, I used to write a column called "Born to Shop." I was a champion at finding great bargains, spending an entire weekend shopping for the best deals. But then my grandmother, Big Mama, said something to me that changed how I viewed bargain shopping and rebate programs.
"Child, you never save when you spend," Big Mama said.
In other words, it's fine if you sign up for these programs and the result is that your purchases lead to some savings. But spending to save isn't as good as just saving.
* On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online at www.npr.org.
* By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.
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