My go-to resource for high-interest savings and checking accounts has long been depositaccounts.com, which has a pretty good list of accounts offering unusually high interest rates on deposits when you meet certain requirements, usually connected to either debit or credit card spending activity, or both. Such accounts are great; what’s not to love about high-interest, FDIC- and FCUA-insured deposits?
When people complain about low interest rates on savings, I usually point to these accounts and argue that this is precisely how we’ll see higher interest rates trickle through the economy: through products offered by regional banks and credit unions that are confident they’ll be able to deploy the deposits profitably within their service areas.
But I stumbled across the subject of today’s post in a totally different way.
Somebody has sold the nation’s credit unions on “round-up savings” accounts
Like many folks with my areas of interest, I have accumulated quite a few memberships in regional credit unions over the years, and today I opened my mail to discover an unusual offer. One of my credit unions has launched a product called “Round-Up Savings.”
The program works like Bank of America’s “Keep The Change” program, rounding up each debit card purchase to the next dollar and depositing it in a savings account. Via Henry Fung on Twitter, I learned that program used to match contributions up to $250 per checking account — a good deal!
This Round-Up Savings program works slightly differently: instead of matching your savings contribution, it pays 20% APY (through February) and then a “high interest rate” thereafter.
Knowing that virtually all credit unions deal with the same traveling salespeople, it occurred to me to look around to see if any other credit unions had bought into this scheme.
The best one I found on the first couple pages of Google search results is a credit union in Kentucky which offers:
- a 100% match for the first 90 days;
- a 5% match thereafter (the two matches are capped at a combined $250, I believe);
- a 5% APY dividend rate (oddly the dividend is paid annually instead of monthly, but it’s advertised as APY which in principle is supposed to control for compounding frequency).
How do you fund these accounts?
Every Round-Up Savings account I found allows the account to be funded exclusively through round-up transactions; you can’t just deposit your life savings into your new 5% (or 20%!) APY account.
What you have to do is make purchases with your linked debit card that end in as small a cent figure as possible, ideally while minimizing the dollar figure — $0.01 purchases would be ideal, for example.
Assuming the best case scenario, that you have access to a tool that lets you charge $0.01 to your linked debit card an unlimited number of times, you’re then faced with a grim reality: such a transaction only deposits $0.99 into your account. One thousand (1,000!) such transactions would only result in a deposit of $990.
So the opportunity is throttled by your patience, the tools you have available, and the willingness of your credit union to entertain your antics. That’s going to dissuade virtually everyone from pursuing these high-interest accounts aggressively.
And that’s the real reason arbitrage opportunities last as long as they do.
You could always pay your Comcast bill $1.01 at a time.