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On the way home from a ski trip my friend Emily told me she saved $800 over two years without thinking. WHAT?!?
Emily signed up for a Bank of America program called Keep the Change. It puts aside the change rounded up to a dollar from every purchase she makes with her debit card. So if her groceries comes to, say $32.50, Bank of America takes $.50 from her checking and puts it into a special savings account. If she spends $12.03 on lunch, $.97 is deposited into her special account. If gas cost $28.46, she automatically saves $.54.
Each time she makes a purchase with debit, she doesn’t have to approve the deposit or even think about it. Over time, Emily’s little chunks of money grew to $800. It helped that for the first three months, Bank of America matched her contributions 100%. That’s free money! After three months, the match falls to 5% up to $250 per year. B of A is one of many banks that offer this type of automatic savings program. The Armed Forces Bank and Academy Bank have a Saving Cent$ program.
There are lots of caveats to the B of A program, however. To participate, you need to have or open a B of A savings account and checking account with a debit card. Purchases with rewards or ATM cards are not eligible for matching. A minimum balance of $25 is required upon opening. Matching funds will be reported to the IRS on Form 1099 and fees may reduce earnings. You can open up to five of these accounts per person or household, whichever is less.
But before you run out and sign up for Keep the Change, there are a few things to watch out for:
- The annual percentage yield is very low, a half of one percent (.05%).
- The money you are saving is transferred to you once a year on the anniversary of the date you opened the account. So you don’t have access to the money a very long time.
- You may face fees if you do not meet minimum deposit or other requirements.
This program, and others like it, are not new. B of A’s Keep the Change program dates back to Dec. 2005. I have never used this type of savings account and prefer to take out a chunk each month by automatic deposit. But for folks who struggle to pay themselves first, this may be a good first step.
Have you use this type of savings program? Would you recommend it?