Credit Card Rewards vs. Keep the Change

One of the very first personal-finance pieces I ever wrote was about Bank of America’s Keep the Change program (it was years ago and it wasn’t for this blog, I was trying to get it published in a magazine. It never happened). At the time, I thought it was a great idea and gave customers a creative way to save money without having to think too much about it.

Here’s how it works: Every time you use your debit card to buy something, your total gets bumped up to the nearest dollar and the difference is shot over to your savings account. So if you bought a soda for $1.23, your BofA statement would charge your card for $2 and 77 cents would be deposited into your savings account. Poof. Just like that. And for the first three months, they will actually match your savings at 100%. That means that, on that last example, you’d be getting $1.54 sent into your savings account. After the first three months they match at 5% with a total limit of up to $250/year.

That’s awesome, isn’t it? But I never gave it much thought because, even though I’m a BofA customer (my tribulations have been well documented), I’m a credit-card rewards person. I buy everything with my card and accumulate points, which I then turn into cash. It never occurred to me that the two savings programs might comparable. And after a little bit of research , you might be surprised to see what I found.

Keep the Change

I decided to run a simulated savings year with Keep the Change to see what I would’ve saved if I was using their program. I took the last two months of credit-card activity, figured much I would have deposited into my savings if I was using my debit card, and then added any matching funds. Here’s what I found.

Bank of America will match those funds for the first three months at 100%, so that means for a hypothetical three-month period, I would be saving $96.

For the rest of the year I would be matched at 5%, which means those months would net me $151.20.

Not bad for not really changing any of your behavior, but how does it compare to my current system of using my credit-card rewards?

Bank of America WorldPoints Card

This card has lots of different ways you can redeem your points (magazine subscriptions, buying stuff from a catalog, travel, etc.), but I always take the cash. And that means calculating the return on my money is pretty straightforward. If you wait until you have 25,000 points (a dollar spent is a point earned), then you get a check for $250 cash. This is what I do, and so my return on the card is 1%.

I went back into my credit-card statements and calculated the average amount of money spent per month. It was $1,484. So,

And that’s UNREALIZED gain because you have to wait until you get into the 25,000 point range to get to a 1% return. Keep in mind, this is free money as long as you pay your balance in full every month and don’t incur any penalties or fees.

Recap

So that means that the program I’m using is netting me less than a program I have available to me, right? Technically, yes. But technically, Keep the Change isn’t free money. It’s my money and they are matching some of it. The free money I’m getting from them is the match, which for a year comes to $55.20, in which case the credit card beats it pretty good. This is kind of like the ING/savings rate debate of where to keep your money — I will keep my current system because changing the way I spend and save money isn’t worth the minor difference I would be getting back.

What do you think about these two programs? Do you use either of them and if so, which one do you prefer?

A few other things to keep in mind:

If you have trouble resisting the temptation of credit cards, then it’s obvious you should go with Keep the Change.
More on BofA’s Keep the Change program here, including a nifty little calculator tool that will give you an idea of how much you could be saving.
In the end, the important thing is that you’re saving something and making it a habit
I own shares of Bank of America stock, which doesn’t mean I’m promoting them, it just so happens I have accounts with them and own their stock. Grain of salt.

P.S. I should add here that this is NOT the way you should save money. You should set up an automatic pull from your checking to feed into an ING account or something like that. These two methods I’m discussing are only “bonus” or “extra” ways to save money. The way I see it, I use a card on everything, so I wanted to see which system gave me more bang for my style of spending. And now I know.

[this post has been included in the Festival of Frugality over at FIRE Finance. Make sure to check out the other articles. They aren't as good as this one, but they're decent enough]