Bank of America will be coming out with a new program later this month called Keep the Change. Basically what they have done is set up a “change jar” for you without ever having any coins since it’s all done through debit card transactions.

Once you sign up for a checking and savings account with Bank of America and sign up for their Keep the Change program, every purchase you make will be rounded up to the nearest dollar with the “change” automatically being transferred into your savings account. So when you buy a newspaper for $1.25 with your debit card, you’d be charged $2.00 with $1.25 going to pay for the newspaper and $0.75 being placed into your savings. When you buy a a meal for $4.80, the debit would be rounded up to $5.00 with $0.20 going into your savings account.

To get people excited, B of A is also going to match the change 100% for the first three months (so that $1.25 newspaper will place $1.50 into your savings - $0.75 of your change and a matching $0.75 from B of A) and thereafter 5% (with a limit match of $250 per year).

I give Bank of America kudos for creativity and it is a quality if you don’t see it, you won’t miss it savings strategy, but I also see some negative that you need to be careful to avoid.

The big concern is keeping tract of you checking account balance and remembering that extra money is being taken out. Having extra bits taken out ads up over time and if you don’t count them, you are more likely to overdraw your account. The fine print says:

We aggregate the round up from purchases that post to your checking account each business day and make a single transfer (the “Keep the Change” transfer) at the end of the business day. 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.

What it doesn’t say is that if you overdraw because you thought you had sufficient funds, but the rounding made your funds insufficient, you are going to be hit with big banking fees. Do this just once and all the money you thought you had saved goes straight down the drain.

You also have to be careful to find out exactly what fees come with the savings account:

Savings accounts eligible to receive matching funds include Regular Savings, which requires a minimum opening balance of $100 and pays a variable annual percentage yield that was 0.50% as of 8/16/05. Fees could reduce earnings.

The 0.5% interest is pretty weak, especially when compared to Emigrant Direct’s 4% and even ING’s 3.4%. However, with only a $100 minimum you can transfer excess savings to these higher interest accounts. While the 100% payout for the first three months may make it worth signing up, 5% thereafter makes it so you can only get a maximum of $0.05 for each transaction after that. You’d be far better off using a 5% cash back credit card than your debit card.

My gut feeling is that B of A is going to get a lot of new accounts out of this and increase people using their debit cards although I don’t see it as a good strategy after the first three months. You will need to work the system to come out ahead with this promotion.