J.C.’s Money Blog

I have a Bank of America Keep the Change savings accont. If you don’t know about it, it works as following: You need a checking account and a savings account with Bank of America. When you enroll in the program, every time you make a purchase with your debit/ATM card, the amount charged is rounded up to the nearest dollar. The extra change is then deposited into your savings account. Hence the cool name “Keep the Change”, only you yourself keep the change, not the vendor you might have told that to, if you were paying cash.

Bank of America markets this as a way to get started in saving money a little bit each day, and they make the deal enticing with the introductory offer: They match the savings contributions for the first three months, up to $250. You also have to wait a year to be credited with the matching contributions (meaning keep the account open and stay enrolled in the program).

After the introductory period is over, the match is 5% of the rounded-up change.

I enrolled to take advantage of the $250 intro offer shortly after the program was introduced, but haven’t closed the account, since I have been living out of the country and was waiting for my matching funds.

Well, now I am back and have received my matching contributions of $65 for my first year of enrollment. $65 is a pretty good deal, since I kept my account balance right at the minimum balance on the account of $300.

However, there is one major drawback to this program, the interest paid is a paltry 0.2% APY.

I am losing money by having this account. Since the interest rate is so bad, I need to figure out the opportunity cost of this bank account. Lets calculate:

Assumptions:

1. Account balance is reset to $300 each month.
2. An average of 1 debit card transaction daily, average amount of change kept, $0.50

Results:

1. $0.05 interest earned on average balance of $307.61.
2. $0.75 earned on matching contributions.
3. Total of $0.80 earned from $315 of my money.

This yields about 3% altogether, which is much better than 0.2% interest rate alone. However, as the account balance increases, this yield decreases, effectively penalizing you for saving in this account.

Even with all the matching funds, I would be better off closing the account and opening a high yield savings account from E-Trade or ING.

Assuming an APY of 5%, I would make about $1.25 a month on the $315 in a high yield savings account.

Bank of America, I am losing $.45 per month to keep your Keep the Change account (this is opportunity cost, but its just as real and important as actual costs!) .

It looks like you are not going to Keep my Business.

Note: This is a great deal for Bank of America. They earn a transaction fee everytime you use your debit card, which easily covers the 5% match in most cases, plus they hope to have growing savings account balances, on which they pay next to no interest.

Also, you need a checking and a savings account with them, so that you get used to online banking with them, which entices you to go ahead and consolidate and get a credit card with them too. And while you’re at, why not a mortgage….

Whoever at Bank of America came up with this promotion deserves a raise!