We're not sure whether this is incredibly brilliant or insanely stupid, but Bank of America gets high marks for creativity with its latest debit card enhancement. The bank's "Keep the Change" program allows debit card users to round up their purchase transactions to the nearest dollar, with the difference added to a savings account automatically.

To give it a bit more excitement, BofA will add a 5% bonus to each savings deposit. Since the average round-up amount is 50 cents, the bonus costs the bank just 2.5 cents per transaction, a very cost effective incentive program, if it works.

To kick things off, Bank of America will match the round-up amount 100% for the first 3 months. That will be like giving everyone a 50-cent discount on each transaction. That should spur signups for the program. 

Analysis
The overall concept of automatic or forced savings is excellent. The bank's press release tosses out stats on the recent negative savings rate and quotes David Bach, the relatively well-known author of "The Automatic Millionaire," a best-selling book that espouses automated investing.

The webpage touting the program is attractive and well written. There are few items in the fine print that users will find potentially disturbing:

1. You must visit a branch to enroll (ouch!)
2. The savings account pays just 0.50% and will likely have a service charge unless a minimum balance is maintained (e.g., $300 minimum for Regular Savings)
3. The savings account has a $100 minimum opening balance requirement
4. The bank's contribution will be made annually, and only if you keep your account open for a year

But despite the fine print landmines, we like how "Keep the Change" introduces consumers to the concept of automatic savings and helps them store away a few bucks a month. However, most people need more than nickels and dimes going into their savings account. To be more effective, this program needs an easy way for consumers to add to their savings amount beyond the monthly debit card cash.

For example, a month-end email detailing the total debit card change deposited could include a mechanism that allows users to designate an additional amount to be transferred into their savings account.

We don't expect anyone else to copy this program, so it gives BofA a unique selling point for their checking accounts and debit cards. It should make a little money for the bank from increased debit usage and savings account growth, and it will give users a few extra dollars at the end of the year, so what's the harm. But if you are truly interested in spurring automatic savings among your customers, there are more straightforward approaches that should be equally effective and far less complicated (see Online Banking Report, 120/121 for more on automatic savings).

Ref: Screenshot of Bank of America's Keep the Change page on 5 Oct 2005

--JB