Just save already: Bank gimmicks for saving only sound good

While there's a lot to dislike about the banking system, there's a trend among banks that is positive: encouraging customers to save money.

And yet -- and I hate to be negative on something that seems to scream for a positive reaction -- I sense some serious problems with these programs. Not saving money is a terrible mistake, but saving money the way banks have been suggesting could potentially be a bigger mistake.

U.S. Bank is the latest bank to jump on the encouraging-savings bandwagon. It joins such banks as Bank of America, which has its Keep the Change program, and Wachovia, which offers the Way2Save plan. U.S. Bank's is called S.T.A.R.T., which stands for Savings Today and Rewards Tomorrow. It began this month and is being tested in Cincinnati, Dayton and Seattle, although any U.S. Bank customer can call and ask to opt in. Just dial 1-800-720-BANK (2265).

The idea is simple and admirable, Set up "recurring transfers," reads the web site, "from your U.S. Bank Five Star checking account into your U.S. Bank Five Star Savings account, and the rest is easy. Just sit back and watch your savings grow."

True enough, and if that's what you do, I think it's a great idea. The problem is that the bank offers three choices for saving money, and only one of them is a smart strategy.

With U.S. Bank's S.T.A.R.T. program, you can transfer an amount on any date you choose, or on several dates (say, $10 a week). So if you want to transfer $20 or $45 or what have you on the first of every month, or the 18th, or whatever, go ahead. No arguments here. U.S. Bank is encouraging customers to save, and giving them a pretty easy way to do it. Go, U.S. Bank!

But their other methods of saving, what I'll call Door Number and Door Number Three, those, I would keep shut. Bolted shut.

If you don't want to choose a specific date, similar to Bank of America's Keep the Change program, you can rig your S.T.A.R.T. plan so that every time you spend using either your check card or your credit card, $1 will be transferred from your checking to your savings account. Easy and seemingly painless. Plus, they limit this to $25 each month, so happily, if you go wild with your debit card and use it 198 times in a month, you won't find yourself $198 short.

So what's the problem? This transferring of money from checking to savings, every time you make a purchase, is yet another way that banking becomes very complicated, and complications are the last thing we need right now.

Think about it. Overdraft charges are out of control -- great story this week, by the way, in The New York Times about overdraft fees -- and suddenly you have a method in which more money is coming out of your account. Frequently. The money is going to a good cause -- you and your future -- but somebody's going to get tripped up. And chances are good it won't be the bank.

My first fear was that if somebody has the S.T.A.R.T. program and their $4 cup of coffee caused the person to go
into overdraft, that they might be charged an overdraft fee for the coffee -- and for the $1 transfer from the checking to the savings account.

U.S. Bank had not responded to a request for comment as of this posting. (Update: Several hours after this story went up, a U.S. Bank spokesperson, Jennifer Wendt, contacted me via email. Her comments are now at the end of the post.)

But even if my nightmare overdraft scenario doesn't occur, I'm still troubled by the $1 transfer for every purchase strategy because people already have enough trouble keeping track of their charges when they use a debit card.

I'm afraid that the very people who will be attracted to this savings program are the people who are living paycheck to paycheck and know they need to be saving more -- and, of course, if you're living paycheck to paycheck, you're going to be the most susceptible to overdraft fees.

But, again, transfer $50 or whatever you can afford once a month, and keep the process simple, and the program seems like a no-brainer. This could be a very nice deal. If your savings account reaches $1,000 (you need $50 for that first deposit), U.S. Bank will give you a $50 U.S. Bank Rewards card. Keep it at $1,000 for a full year, and then you'll receive another $50 U.S. Bank Rewards card.

Wachovia's Way2Saveworks the same way. They'll automatically transfer $1 from your checking account into a savings account every time you make a purchase. In that first year, they'll give you a 5% annual bonus in the first year, and a 2% annual bonus for each of the next two years, up to $300 annually. As for the possibility of getting multiple overdraft fees via this savings method, Wachovia's got a clearly-stated policy against it, according to spokesperson Richele J. Messick.

"On any business day," Messick told me in a lengthy email, "if you do not have sufficient available funds in your checking account, or if any transaction has overdrawn your checking account, or if overdraft protection was
initiated, the Way2Save transfer for that business day will not occur.

"This means," she continued, "we will not take the linked checking account into an overdraft situation with the Way2Save daily transfer. If the checking account is already in an overdraft status, or if the daily transfer would cause an overdraft situation, we will not make that night's transfer. Additionally, if there are not sufficient funds in the linked checking account to cover the entire transfer amount (e.g., $10 checking balance and a $15 Way2Save transfer), the transfer will not occur. It is canceled."

With Bank of America's Keep the Change Program, the bank rounds up your purchase to the nearest dollar amount and transfers the difference to your savings account. I don't have Bank of America and haven't seen how it works, but at least with this plan, it seems like the rounding up of numbers would be easier to keep track of your expenses.

As a reward for savings, the bank will match your Keep the Change savings for the first three months, and afterward, at 5%. The maximum match it will give is $250 a year.

And Keep the Change also won't trigger the overdraft nightmare I worried about earlier, which is why I suspect U.S. Bank's won't as well. I spoke to Anne Pace, a Bank of America spokesperson, who told me that if, at the end of the day, you don't have enough money for all of your charges, they won't round them up to the next dollar, and thus that money won't be transferred to your savings account. So, no, you won't get clobbered with two overdraft fees.

Nevertheless, even though what these programs are promoting is a terrific practice, I'd be wary about signing up if you're prone to overdraft fees and constantly feel strapped for cash. Because even though you know you won't be double charged, you're still going to be taking out more money from your account every day, and possibly more money than you plan will come out. Your checking account balance will shrink, and if it's a balance that is often a lot smaller than you feel comfortable with, you're ever so much closer to going into negative territory.

Still -- after years of banks trying to suggest we use our house as a credit card, sinking our equity into vacations and home improvements -- this is a welcome trend. Imagine, banks pushing the message of simply saving money. Our saving cash with them is in their best interest, of course, but it's also in ours.

But sometimes I wonder if banks aren't still trying to pull the wool over our eyes with these cute gimmicks. Whatever happened to staid, boring old banking? It may not be glamorous to salt away your few dollars a month, but it's in everyone's best interest to do so. That's why I appreciate at least one-third of U.S. Bank's S.T.A.R.T. program, for it's straight-forward ease of use.

(As noted above, a U.S. Bank spokesperson dropped me a line after this ran, saying that "the U.S. Bank S.T.A.R.T. savings transfer will never be charged an overdraft fee." She also added, and this is a very good idea for U.S. Bank customers who aren't aware of this: "The customer can designate his or her savings account as overdraft protection. That way they have money to cover those times when they inadvertently go negative."

I'll add that you have to specifically ask your bank manager for the overdraft protection. It doesn't come automatically, and that you'll still be charged a fee if you go into overdraft, and they remove money from your savings account to be put back into the checking account, but it's my understanding that it's much less, like around $10 versus $37.50. In any case, I'd still absolutely opt for the once-a-month transfer over the $1 transfer every time you use your debit or credit card.)

Geoff Williams is a regular at WalletPop, writing mostly about banking issues. He also happens to be the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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