Sometimes it helps to think small – at least if you want to boost deposits. Charlotte-based Bank of America Corp. is betting that its “Keep the Change” program will increase savings accounts over time, even if that increase is literally pennies at a time.

Keep the Change is essentially a savings plan on auto-pilot: all a customer has to do is make a purchase with a BofA debit card, which is funded with a BofA checking account. The bank rounds up the transaction to the nearest dollar and deposits it in the customer’s interest-earning savings account. A $2.25 purchase, for example, would be rounded up to $3 and 75 cents transferred to the savings account.

“That’s combining debit cards, checking and savings in a way that enables customers to save,” said Liam McGee, president of consumer and small business banking for BofA, during a recent Morgan Stanley investment conference.

As an additional incentive, BofA matches the round-up amount for the first three months after customers sign up for the program and continues matching 5% of the round-up amount, up to $250 a year. In the second year, for example, $500 in savings would be boosted $25 by BofA.

This might seem to be an expensive way to raise deposits. “You’d say there’s a little extra cost,” McGee told conference and Webcast attendees on February 16. “But what’s happening? Aggregation. Customers are aggregating balances with us which they would not do otherwise.”

BofA spokeswoman Tara Burke says about 1.1 million customers have signed up for Keep the Change since it was introduced last September, bringing in 250,000 new checking accounts and 400,000 new savings accounts. She declines to quantify the account balances gathered by the program.

McGee explained that BofA’s business model looks at “aggregate profitability” rather than profitability simply by business line or silo. He cited BofA’s decision a few years ago to offer free online bill pay “because customers would aggregate more assets with us, not specifically to drive growth in that one area.” He said BofA earns $100 a year more from customers who pay bills online than those who don’t.

Outside experts applaud Keep the Change as creative, but say it will take time to generate substantial balances. “Clearly, the idea is not just to generate balances with debit card transactions, but to have it so people can put other liquid savings into the (savings) account,” says Rolland Johannsen, a senior consulting associate with Capital Performance Group, a bank consulting firm in Washington.

John Matheny, head of the retail sales and marketing practice for Brintech Inc., a bank consultant in New Smyrna Beach, Fla., notes BofA’s ability to spread its costs across a huge base (38 million consumer and small business relationships, according to the bank). He says BofA therefore may not need large balances in each customer’s account to benefit from the package.

“It’s an excellent strategy to build up those small deposits, which are going to be low interest,” Matheny says. “They’re just going to sit there.”

The BofA initiative comes at a time when U.S. banks are having trouble raising low-cost deposits. Domestic deposits grew at a compound annual growth of 8.0% from 2000 through 2003 and then slowed to 7.1% through the first half of 2005, according to Novantas LLC, a New York-based management consultancy. The slowdown most affected low-cost checking, savings and money market accounts, since time deposit balances (CDs) have shot up at an annual rate of 21.8% since 2004, Novantas says.

For more on the current challenges of raising deposits, please see “Fighting the New Deposit War” in the November/December 2005 Banking Strategies.

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