- The Washington Times - Tuesday, October 25, 2005

It’s increasingly obvious that Americans are not very diligent about saving money.

According to the latest government figures, Americans spent more than they earned throughout the summer. That resulted in negative savings rates for June, July and August, after a paltry savings rate of 0.1 percent in the preceding three months.

So it should come as no surprise that banks and other financial institutions are creating spend-to-save programs — rewards programs patterned after the popular frequent flier plans for airlines and aimed at allaying consumer fears about their bad savings habits.

New offerings include the Bank of America Corp.’s “keep the change” debit card, which rounds the price of a consumer’s purchase up to the nearest dollar and transfers the extra money to a savings account. The American Express Co. has introduced a credit card called One, and says every purchase on the card will trigger a 1 percent deposit into a high-yield savings account.

They are building on programs such as BabyMint and Upromise, which help families save for college for their children, and NestEggz, which is a retirement savings program.

And, of course, there are dozens of reward cards, some of which urge consumers to save the cash they get back.

“Over the past 18 months or so, there has been an explosion of programs out there,” said Greg McBride, a financial analyst with Bankrate.com in North Palm Beach, Fla.

Most of the rewards cards are designed to increase customer loyalty, he said. That’s because the more they use a specific card, the more they get back.

The new cards have a similar goal, “with savings as a side benefit,” Mr. McBride said.

But some consumer analysts worry that Americans don’t need more inducements to spend.

“If it’s enticement to run up higher credit card debt — that’s a confusing saving incentive, to say the least,” said Travis Plunkett, legislative director of the nonprofit Consumer Federation of America advocacy group in Washington.

Mr. Plunkett also worries that some consumers will overestimate the amounts they will accumulate under spend-to-save programs.

If a program promises a 1 percent rebate, for example, a consumer has to spend $1,000 to get $10 back or to get $10 deposited in his or her savings account.

“These are absolutely not alternatives to meaningful savings,” Mr. Plunkett said.

Even if consumers read the fine print in the spend-to-save offers and don’t find pitfalls, they still can trip themselves up if they are not careful. Mr. McBride points out that the reward credit card offers are best for consumers who play their bills in full every month.

“They don’t incur any finance charges, so they’re truly getting something for nothing,” he said.

But consumers who carry a balance on their credit cards — and about 60 percent of Americans do — may be better off looking for a low-interest card than a spend-to-save or rebate offer, he added.

Here’s his math: Say the card promises 1 percent back and it’s going into an account that can earn 3.5 percent, but the card carries a 13 percent interest charge on unpaid balances. If a consumer spends $100, the rebate of $1 would earn 3.5 cents in interest in a year, but the finance cost for carrying that $100 balance would be $13.

“That’s dwarfing what you’re getting back,” Mr. McBride said.

On debit cards, he said, “the one caveat is, don’t overdraw your account.” That’s because an overdraft fee — often $25 or more — “will wipe out months of … contributions to your savings account.”

Mr. Plunkett and Mr. McBride said the new programs could be a small step toward saving for people who aren’t doing so.

“It is a way Americans can save a little bit of money in a regular fashion,” Mr. Plunkett said. “But it shouldn’t be seen as a substitute for regular savings in real savings accounts.”




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