Local bankers question the impact of innovative Bank of America program
By: Mike Mathis
Bank of America is counting on consumers to save a few cents at a time.
The "Keep the Change" initiative, unveiled recently by the Charlotte, N.C.-based institution at its Princeton-area branches, is designed to help Americans save money at a time when the nation’s personal savings rate is low.
However, some local bankers, including those at Yardville National Bank and Hopewell Valley Community Bank, wondered whether customers could get a better rate of return on their money through traditional savings accounts and if "Keep the Change" is nothing more than a way for Bank of America to boost its own earnings.
When a customer signs up for "Keep the Change," the amount of every purchase they make with a Bank of America debit card is automatically rounded up to the nearest dollar and transferred from the customer’s checking account into a savings account. For example, when purchasing a coffee with a debit card, the difference between the $2.85 cost and $3 or 15 cents would be transferred electronically.
Bank of America matches 100 percent of the "Keep the Change" transfers for the first three months. After that, the bank will contribute 5 percent a year. The maximum match is $250 annually.
But Brian K. Gray, first senior vice president of Yardville National Bank, said his institution has other savings products, including youth savings and passbook savings accounts, that are just as easy to use and offer competitive interest rates.
"It’s a very novel and unique approach," Mr. Gray said of "Keep the Change." "It’s being sold as a savings vehicle, and it’s more of a plug to get consumers to use debit cards more actively and more often. We have a lot of other ways people can save money."
The potential for the "Keep the Change" initiative to succeed is enormous, Bank of America officials said. Bank of America is the largest debit card issuer in the country, with 27 million cards issued.
"Keep the Change" was launched in late September and is available in all Bank of America markets except Idaho and Washington, where it will be available next year.
"A lot of our customers said they wanted an easy and effective way to save money," Bank of America spokeswoman Tara Burke said. "With ‘Keep the Change,’ they don’t have to think about it."
Implementation of "Keep the Change" comes at a time when the personal savings rate is low, according to Bank of America.
The U.S. Department of Commerce reported that personal debt amounted to $61.8 billion in August, compared to $100.9 billion in July, the bank said. Personal savings as a percentage of disposable personal income was -0.7 percent in August, compared with -1.1 percent in July, the bank said.
While acknowledging that Americans should be encouraged to save more than they do, one local bank executive questioned whether the primary goal of "Keep the Change" was to generate greater fees for the use of Bank of America’s debit cards.
James Hyman, president and CEO of Hopewell Valley Community Bank, wondered whether participants in the "Keep the Change" program would be able to earn more in interest by opening a traditional savings account.
A regular savings account at Hopewell Valley Community Bank can be opened for $100 and carries an interest rate of 3½ percent, higher than the 1½ percent to 2½ percent offered at other institutions, he said.
"The value of what they’re doing is tied a great deal to what their return is," Mr. Hyman said. "It’s certainly innovative, but it comes down to value."