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Wachovia's Way2Save: Deal or No Deal?

By Jim Bruene on February 7, 2008 12:00 PM | Comments (6)

Earlier this week, Ron Shevlin wrote about the "disingenuous" (see note 1) advertising from person-to-person lenders (here). He took issue with their claims of facilitating loans primarily for the social good, rather than for a profit motive. That criticism might be a little harsh, but he has a point.

Wachovia way2save ad Well if Ron doesn't like P2P ads, I wonder what he thinks of this one from Wachovia? The advertisement in question is for the bank's well-named, and well-intentioned new savings account, Way2Save.

I saw it advertised yesterday, above and adjacent to US Today's popular Super Bowl Ad Meter (here, screenshot below, note 2). According to BusinessWeek, the product is being supported with an eight-figure ad buy. 

Wachovia's ad promises an impressive return, a 5% APY plus a 5% bonus. On the face of it, that's a 10% yield. They'd have $100 billion in it tomorrow if it was that simple.

Here's the fine print:

  • Must have a Wachovia checking account (but those are free)
  • Limit of one Way2Save per checking account (but you can have more than one free checking account, see note 4)
  • The only way to fund the savings account is through automated monthly debits from your Wachovia checking account (and those have to be set up in branch or over the phone)
  • Maximum monthly transfer amount is $100, so the most you can add to the account in a year is $1200 (see note 4)
  • The savings account has a variable rate and it not guaranteed to stay at 5% over the course of the year; and it is already scheduled to decline to 2% in years 2 and 3 (see detailed disclosures here)
  • The bonus in year 2 and 3 falls to 2%
  • A hard inquiry is posted to your credit bureau when opening a new checking account
  • After the first year, the savings account has a $5/mo fee if there are no automated deposits

Analysis
For a small saver who can sock away $1200 over the course of a year, earning a 5% bonus, or $60, is an excellent deal, amounting to 15% return on the average annual balance of $600 ($30 interest @5% plus $60 bonus = 15%). While that's a fantastic APY, the $600 balance limit means the total extra earnings are only $5 per month, before tax, hardly a strong motivation for most savers.

The other part of the account that has created more confusion is the $1 transfer to savings with every debit card purchase, automated debit, and online bill pay. Some consumers, and even a few bloggers, have assumed Wachovia is paying a $1 bonus on each transaction. Now that would be a deal, if it were true. The $1 is simply a transfer from the user's checking account to his/her savings account. Wachovia will apply the 5% bonus to those $1 transfers, but that's only $0.05 per debit, or $1/month pre-tax for an active electronic banking user making 20 transactions per month. Again, not a strong motivator for most savers.

The semi-disingenuous advertising
Overall, we like the account. But we are not so thrilled with some of the advertising. Our main complaint: the landing page overplays the $300 maximum reward amount, which is virtually impossible to reach. Many visitors will initially believe that a $300 maximum payout means they can drop $6,000 in the account. However, that's not the case since it's limited to $100 month contributions, yielding a $60 bonus.  

Where does the other potential $240 come from? (This is the disingenuous part.) Answer: From the $1 funds transfers every time a Wachovia debit card is used. So the average visitor might think, "wow I'd have to make 240 debits to come up with the $240." Wrong again. The $1 is just a funds transfer from checking to savings (note 3). At the 5% bonus level, Wachovia only pays a nickel per transfer.

So how do you get a $240 annual bonus from that? You'd need 400 debit card transactions EVERY MONTH. That's not a typo, 400 transactions per month, or 4800 per year in order to earn the $300 shown in the headline of the Wachovia landing page. And that's in the first year. In the second year, with a 2% bonus, you'd need 1250 transactions per month to reach the $300 mark.

Final verdict
Ignoring the advertising, I say it's a deal for the customer. The product makes sense for beginning savers, a cross between Bank of America's Keep the Change (coverage here) and WaMu's Saving for Success (coverage here). I like the focus on automated savings, and the $1 per debit gimmick seems harmless, so long as it's better disclosed.

However, I'm not sure it's such a deal for the bank, at least not worth a $10-million ad campaign (note 5). Many Wachovia customers drawn in by the advertising will go away disappointed due to the fine print. In addition, thousands and thousands of zero-balance checking accounts will be opened to game the system, then closed at the end of the year, wasting bank resources and putting pressure on 2009 sales. 

Wachovia advertising on USA Today Super Bowl Ad Meter (6 Feb 2008)

 image

Wachovia landing page from USA Today ads

Wachovia way2save landing page

Notes:

  1. I knew it wasn't a compliment, but I had to double check that one in the dictionary for the precise meaning: "lacking in candor or sincerity" or "pretending to be unaware."
  2. I was disappointed to find that E*Trade's ads finished outside the top-10 (#13 and #14). 
  3. Although it's not addressed in the Wachovia's FAQs, apparently the $1 automatic funds transfer will be canceled if there are insufficient funds, so it can't trigger a $30 NSF fee. 
  4. The folks posting at FatWallet are sharing account details to game the system. According to several posters, the bank allows up to 5 accounts per person in the household, but only one Way2Save can be linked to a single checking account. One poster says he opened 15 checking accounts and 15 Way2Save accounts and will transfer $100 per month into all 15 accounts, resulting in an $18,000 year-end balance and a $900 bonus. Then he'll close all 15 accounts and move on to next year's hot rate. One poster said, the branch people seemed happy to set up five new checking accounts since they appeared to get a bonus for each one. To avoid the "FatWallet effect," make sure you always have account limits and sales incentive limits.
  5. Granted, the $10+ million is more to promote the bank' image than for the product itself. And being associated with savings is good branding these days.
Comments (6)

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6 Comments

As I commented on my own site, I may have been a little harsh in using the term "disingenuous" (but I'm not recanting).

To best way to explain what Wachovia is doing wrong here is by example: ING Direct.

ING Direct's marketing comes off as authentic and honest. And if there was one word that describes the firm's product structure it would be SIMPLE.

I don't think Wachovia comes off as very authentic with this marketing, and the conditions associated with the product practically requires a lawyer to decipher.

One last point: Everything I've read says the days of the 8-figure media buy are dead. Somebody's got it wrong, no?

@Ron

(Slight) softening of your position on P2P ads duly noted.

Way2Save, while not at all simple, that eye catching 5% + 5% rate, combined with the trusted Wachovia brand, should draw traffic and accounts. Not sure what the bank will be left with a year from now, when the 5% goes away.

At a bare minimum, I applaud the injection of some kind of savings incentive. This isn't ING simplicity, but it is an improvement over the don't-bother-to-save-if-you-can't-bring-$5,000-to-the-table mentality of many large banks.

That said, I also consider a good rate superior to this shell game. Better yet, the high-yield checking accounts found at various FIs. The marketing is easier. The payoff is more compelling.

Savings for Suckers is Wachovia's Way2Sav.
Interest paid "on eligible balance up to $300" and pays only 2% for years 2 and 3. As far as I can tell, amounts over $300 earn NOTHING on the excess.

Way2Save is a good savings pedestal for people who don't have an ounce of the savings mentality. Compared to where th rates are now with most banks after all (and to be done) Fed cuts, I ll take the 5% interest and bonus. here are the psitives:
1) The auto transfer set up is a no-brainer (easy 60 bucks), 2) perform 40 debit transactions a month (thats 480 dollars moved to way2save savings), 3) use Wachovia's excellent customer service and brand name and 4) Don't need a 5K or 10K min balance to start a Money Market account with any of the big banks to get the current 3% interest rate.

Way2Save is a pretty good plan for small savings. By allocating the max. $100/mo deposit, paying my bills online, and using my debit card instead of credit cards (which get paid in full each month anyway), I'm able to average about $225/mo into the account. I'll take 5% interest and a 5% bonus on that any day. And for those naysayers who poo poo the 2% in years two and three, when it comes to simple savings, or MMA's, you would be hard pressed to find any that are paying much over 2%. At the end of year one, I'll take that account and put it in a better investment, and start a new account at 5% again.

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