Nickel and dimed

Here’s a banking product you really don’t need:

With the Bank the Rest savings program, Canadians using their ScotiaCard to make debit card purchases can choose to round up the total purchase amount to the nearest dollar or five dollars, and have the difference deposited automatically into their Scotiabank Money Master High Interest Savings account where their money will continue to grow.

According to Scotiabank, rounding up your debit card purchases is a “powerful way to save.” Except, you have to save the money in the Scotia Money Master account, which offers an interest rate of 2.25% annually — less than an ING Direct account, which you could hook up to your existing bank account free of charge. Oh, right — did I mention you have to have another Scotia account to open the Money Master account?

The press release even enlists one of the bank’s economists to extol the virtue of the Bank the Rest plan:

“With Canadians confronted by the rising cost of day-to-day expenses, saving for the future can become less of a priority, especially with the economy underperforming,” said Aron Gampel, Vice-President and Deputy Chief Economist, Scotiabank. “Canadians can be expected to build their savings during these challenging times. Every little bit helps towards gaining
financial security.”

Maybe I’m just too dim to follow, but might Canadians confronted by the rising cost of day-to-day expenses not need the rest to buy what they need?

The example included in the press release also mystifies:

For example, if a customer signed up to round up to the nearest dollar, and made a debit purchase for $7.50, 50 cents would automatically be transferred from his/her chequing account into his/her Money Master High Interest Savings account. If that person had decided to round up to the nearest five dollars, $2.50 would be transferred. To look at how savings could add up, someone who does 19 transactions per month, and has chosen to round up to the nearest dollar could save approximately $9.50 per month.

19? Why 19? Who uses a double-digit prime number for an easy-to-grasp example? I smell sabotage.

A cheery financial advisor also offers kind words about the Bank the Rest plan. According to her, “getting ahead financially can be built on small wins.” In this case, very small. Using the handy Bank the Rest calculator shows that by rounding up to a dollar by 75 cents 10 times a month, you’ll accumulate $90 in your savings account in one year. The total contribution from Scotiabank? $2.52 in interest. The magic of compound interest, indeed. I’d recommend throwing change into a jar instead — less work.

Nickels and dimes aside, the real road to getting ahead is making more money than you need to pay for your daily life. You might then have discretionary income to save. So it’s worth considering that the starting pay for tellers at Scotiabank is $12 an hour. Giving the many lower-paid workers at Canada’s big and profitable banks a raise might be a more constructive way to drum up new savings account business.