Archive for November 27th, 2006

Bank of America (with a horde of other banks on its heels) launched its Keep the Change promotion a year ago. Since then, 2.5 million people have been suckered into this folly. Unless you lack even the basest levels of discipline, this is a bad way to save. These days even checking accounts pay interest and there is virtually no reason for your money to languish in a savings account. Even if you do like to keep a rainy day emergency fund in cash, a money market account is a far better option for temporary savings.

Interestingly enough, the Keep the Change promotion was the cunning invention of IDEO (an outsourced design operation) after Bank of America approached them with a request for “ethnography-based innovation opportunities” (an alarming choice of words even if unintelligible). Apparently the target market was boomer-age women with kids.

Most people should have cash lying around in no more than 3 accounts:

1. A checking account [day to day cash needs]
2. A money market account or CD [ 3 – 6 month reserve fund for when disaster strikes ]
3. A brokerage account [ cash sitting in a money market fund waiting for deployment into your stock/bond portfolio ]

Stashing a few cents a day into a savings account which pays an interest rate below inflation is a recipe for the cat food you will be eating in your old age unless you take charge of your financial life.