Banks push spending to encourage saving

Filed under: Banking & Finance |

There has been a lot of talk lately about Americans saving less money these days, and by some accounts the nation’s personal savings rate is at its lowest point since the Great Depression of the 1930s.

Experts say this is a problem because it’s leaving Americans ill-prepared for emergencies and retirement, and building potential for a financial crisis down the road.

Whatever is to blame for fewer savings accounts – many say a more lavish lifestyle where possessions are increasingly a symbol of status – many financial organizations are searching for ways to make saving popular again.

A few banks have introduced credit card programs that help people save money by spending money.

Save by spending? Aren’t the two diametrically opposed to each other, you may ask.

Well, yes, but Bank of America and American Express have new rewards programs that kick a little pocket change into a savings account each time you make purchases with their credit cards.

The idea of rewards for spending with a particular card isn’t new. Consumers can already earn frequent-flier miles and contributions to college savings plans when they charge purchases at certain places.

Bank of America’s program, called Keep the Change, will round up the amount of purchases to the nearest dollar and put the change into a savings account, but to participate you must have a Bank of America checking and savings account, plus a debit card.

And, for the first three months of the using the program, the bank will match the savings deposits penny for penny.

After the first three months, the bank will deposit five cents for every dollar saved up to $250 annually.

The American Express savings plan is similar.

Critics say the program has mediocre value at best because nickel and diming, even when matched by pocket change from the bank, is no way to create a reliable savings account.

At worst, they say the program will entice people to spend more and give a false sense of savings plan security.

Proponents maintain that for the many Americans who have no savings account, a little is better than nothing.

TCF expanding into Arizona

TCF Financial Corp. plans to add Arizona to its list of expansion territory.

The bank operates in Colorado, Illinois, Indiana, Michigan, Minnesota and Wisconsin.

TCF plans to open several consumer loan production offices in the fast-growing Phoenix metropolitan area during 2006, with construction of traditional retail branches to begin later in 2006 or early 2007.

TCF is a Wayzata, Minn.-based national financial holding company with $12.7 billion in assets.

TCF has 442 banking offices nationally.

Wachovia CEO named banker of the year

The trade publication American Banker has named Wachovia’s Ken Thompson the 2005 Banker of the Year.

The publication’s editors, who were the judges for the award, cited the Wachovia’s growth and performance, coupled with a careful approach to mergers and acquisitions, as reasons for Thompson’s recognition.

A special report, Best in Banking 2005, showcasing profiles of the 2005 honorees and a wrap-up of the year’s most important banking headlines, will be published Dec. 1.

AARP creates financial subsidiary

The American Association of Retired Persons has announced that it has created a wholly-owned subsidiary called AARP Financial.

The new organization will oversee AARP-endorsed financial services and offerings, including credit cards, insurance and investment products.

Larry Renfro, a financial services executive with 25 years of experience, has been named president.

AARP officials said the organization’s goal is to provide information, education, products and services to members, which will soon include 76 million baby boomers approaching retirement.

AARP Financial offerings will include auto and home insurance through The Hartford, credit cards through Chase, life insurance through New York Life, and mobile home and motorcycle insurance through Foremost Financial.

FDIC funds make humble gains

The Federal Deposit Insurance Corp.’s Bank Insurance Fund increased by $240 million during the third quarter of 2005, or 0.7 percent to reach a total of $35.3 billion.

During the same period, the Corp’s Savings Association Insurance Fund increased by $110 million or 0.9 percent to reach $13.0 billion.

Year-to-date, the BIF and SAIF grew by $547 million, 1.6 percent, and $319 million, 2.5 percent, respectively.

The humble growth comes amid concerns about the growth rate of uninsured deposits and the potential impact of this year’s hurricanes on loan portfolios of banks.

The designated reserve ratios for both funds remained above the statutory required limit of 1.25 percent. However, if insured deposit growth continues to increase in line with recent historical average rates, the funds’ reserve ratios will likely trend lower. As of June 30, BIF and SAIF reserve ratios were 1.26 percent and 1.32 percent, respectively.

Rob Larimer covers banking and finance for the Colorado Springs Business Journal.