BOA's Keep the Change Program...what's the catch?

[tremorviolet]

Bank of America is running a new program where whenever you make a debit card transaction, you can have the totaled rounded up and deposited into a savings account. And Bank of America will match the savings 100% for the first three months and at 5% thereafter.

So I can’t figure out what the benefit to Bank of America is. Are they trying to encourage debit card use? I didn’t think that was an problem as debit cards are really popular. Do they benefit from saving accounts so much that the matching funds make sense? They’re pushing it pretty heavily to existing customers so I don’t think it’s to attract new customers.

Anyone know how the program would be advantageous to the bank?

BTW, I tested the saving with an old monthly budget and even though I use my debit card for everything, I would wind up contributing only about $30 a month. But matching funds are still free money…

[Emerald_Hawk]

@tremorviolet

So I can’t figure out what the benefit to Bank of America is. Are they trying to encourage debit card use? I didn’t think that was an problem as debit cards are really popular.

While it’s true that they are really popular, they could still be a lot more popular. From this story in the Toledo Blade:

In 2003, the latest year for which figures are available, credit card transactions amounted to $1.7 trillion, compared with $600 billion for debit cards (which includes ATM withdrawals).

So there’s plenty of room for improvement. Plus, BofA is probably hoping to aquire existing debit card users from other banks, who may like the idea of this plan. It’s not really that different than Discover offering a little cash back or the various other rewards credit cards.

[Amp]

There is a limit on the amount they match of $250.

[gotpasswords]

It’s a benefit to them because it’s keeping more of your money in the bank.

It’s a clever way for them to make millions of tiny deposits per day into savings accounts that pay the customer at something like 1.2% while they’re using the money internally at something closer to LIBOR or prime. As long as they’re able to invest or loan out your 37¢ “change” at more than they’re paying you in interest, they’re making money.

The basic rule of banking: The bank is making money off of your money, but only if they can keep your money in the bank.

[tremorviolet]

@gotpasswords

It’s a benefit to them because it’s keeping more of your money in the bank.

It’s a clever way for them to make millions of tiny deposits per day into savings accounts that pay the customer at something like 1.2% while they’re using the money internally at something closer to LIBOR or prime. As long as they’re able to invest or loan out your 37¢ “change” at more than they’re paying you in interest, they’re making money.

The basic rule of banking: The bank is making money off of your money, but only if they can keep your money in the bank.

That makes sense. I had kinda suspected it was something like that but I didn’t realize savings accounts were that profitable for them.

[Spectre_of_Pithecanthropus]

Besides they can always raise the overdraft fee by five bucks to cover the matching, and more.

[ZipperJJ]

Don’t forget, too, that alot of people have a problem using their debit cards and tend to overdraw (I see alot of Pit and GQ threads about this). Encouraging debit card use is a good way for BoA to collect overdraft fees.

[Cluricaun]

@ZipperJJ

Don’t forget, too, that alot of people have a problem using their debit cards and tend to overdraw (I see alot of Pit and GQ threads about this). Encouraging debit card use is a good way for BoA to collect overdraft fees.

I think this nails it on the head. Many, many people are horrible at balancing their checkbooks, if they do it at all. “Rounding up” all of your debit card purchases is going to cause lots of people to overdraft their checking accounts more than ever by blowing their mental math by as much as $.99 per transaction. I’d be curious to see if BoA offers overdraft protection to accounts selecting this savings program. If not, or if it’s very limited, then this might very well be the case.

[tremorviolet]

@Cluricaun

I think this nails it on the head. Many, many people are horrible at balancing their checkbooks, if they do it at all. “Rounding up” all of your debit card purchases is going to cause lots of people to overdraft their checking accounts more than ever by blowing their mental math by as much as $.99 per transaction. I’d be curious to see if BoA offers overdraft protection to accounts selecting this savings program. If not, or if it’s very limited, then this might very well be the case.

I don’t think that’s it. From the BOA website:

If on a business day you do not have sufficient available funds in your checking account, or if any transaction has overdrawn your checking account, we do not round up purchases posted on that business day and we cancel the Keep the Change transfer for that day.

So the program itself will not push you into an overdraft. One of the things BOA is touting is that the rounding up will make things easier for those who are mathematically challenged as they can more easily subtract whole dollars.

Plus, we’re talking pretty small amounts. I just looked at a day where I had nine transactions and the projected round-up only came to $4.32.

Hmmm, I did just notice this:

The matching funds will be credited to your savings account annually, within 8 weeks after the month in which the anniversary of your enrollment in the Keep the Change savings service occurs. To receive the matching funds, your checking and savings accounts must be open and in good standing and you must still be enrolled in the Keep the Change savings service at the time the matching funds are credited.

(bolding mine)

So you have to wait a good long while and have the accounts in good standing. I bet that eliminates a good percentage who actually get the matching funds.

[Tyr]

@Cluricaun

I’d be curious to see if BoA offers overdraft protection to accounts selecting this savings program. If not, or if it’s very limited, then this might very well be the case.

BoA already offers overdraft protection to anyone. It is free untill you overdraft at which point they transfer 25 dollars to your checking acount and charge you a ten dollar fee (so a total of 35 dollars out of your savings). I don’t know what happens if you overdraw by more than 25 dollars on one purchase though.

[Mindfield]

I don’t know how it is in the US, but banks in Canada charge Interac fees on debit card purchases that A) exceed your monthly allotment according to your account plan, and B) are made from a debit machine not of your bank. The debit fees are usually $1.50 per transaction. Thus, in Canada, a “keep the change” program would still amount to a net loss to the Interac fees. You’re just no paying out as much money to said fees.

[tremorviolet]

@Mindfield

I don’t know how it is in the US, but banks in Canada charge Interac fees on debit card purchases that A) exceed your monthly allotment according to your account plan, and B) are made from a debit machine not of your bank. The debit fees are usually $1.50 per transaction. Thus, in Canada, a “keep the change” program would still amount to a net loss to the Interac fees. You’re just no paying out as much money to said fees.

Yeah, that’s not a factor here. Our debit cards are branded with a “Visa” or “Mastercard” and you use them just like a credit card with no fees. You only get a fee if you’re withdrawing cash from an ATM that’s not your bank’s. But for purchase, nothing.

[Rick]

I think you guys are also overlooking one more factor. The keep the change program is a great way for B of A to get conquest business. If someone is unsatisfied with their existing bank, they might consider B of A due to the keep the change program.
In a very cluttered field this is a way for B of A to stand out.
I wanted to open an additional bank account for the home remodel I am doing. I opened my account with B of A (who I had never done business before) for two reasons: First was the keep the change program (hey it’s free money) and secondly I can get my picture on my debit card to deter a thief if my card is stolen. So far I have been very happy with their service. I may move all my accounts there.

[Mindfield]

@tremorviolet

Yeah, that’s not a factor here. Our debit cards are branded with a “Visa” or “Mastercard” and you use them just like a credit card with no fees. You only get a fee if you’re withdrawing cash from an ATM that’s not your bank’s. But for purchase, nothing.

Sort of like my PayPal debit Mastercard. So you don’t have just plain old bank-issued debit cards?

[tremorviolet]

@Mindfield

Sort of like my PayPal debit Mastercard. So you don’t have just plain old bank-issued debit cards?

Gosh, I don’t know if you can even get those anymore. I just poked around the BOA site and didn’t see anything. Since you can use the “Visa” debit card for ATMs as well, I think they’re the default.

Just to clarify, the debit cards I’m talking about are bank issued, they’re just usable at all places that take credit cards. I think the banks really like them because there’s significantly less processing involved for an electronic transaction compared to old fashioned paper checks. I’m surprised they’re not popular in Canada.

[Shagnasty]

@Rick

In a very cluttered field this is a way for B of A to stand out.
I wanted to open an additional bank account for the home remodel I am doing. I opened my account with B of A (who I had never done business before) for two reasons: First was the keep the change program (hey it’s free money) and secondly I can get my picture on my debit card to deter a thief if my card is stolen. So far I have been very happy with their service. I may move all my accounts there.

I am usually very skeptical and critical of large banks but BoA bought mine. You want to see something impressive?

I recently had to take out a home improvement loan the size of most people’s mortgages. I have never seen a business more efficient in my life. We filled out one little form rather than the stacks that regular mortgages take. They took care of all the paperwork then called us to arrange closing. They said we could do it at any branch we wanted and they would have someone meet us. Sure enough, we picked a small branch close to our house, they had somebody waiting and we just signed a few times. They gave us FOUR different ways to access the money at all times and any payment schedule we wanted with flexible terms that we can just change with a phone call or logging in.

As someone who’s profession is to make business processes more efficient, I was pretty impressed.