Wachovia Corp. says it hopes to attract customers with a savings product that automatically transfers a dollar into the account with each debit card and electronic transaction.
The main draw of the Charlotte company's Way2Save product is its initial 5% interest rate and 5% bonus on all funds in the account after a year.
It is similar to Bank of America Corp.'s Keep The Change program, which transfers money into a savings or money market account with every debit card purchase. (B of A has a patent application pending on this product.)
Kathryn Black, Wachovia Bank's savings director, said its product is designed to appeal to people who want the high rates associated with certificates of deposit but cannot afford one.
Americans "feel very stressed about not being able to save," Ms. Black said. "They need something that's easy and automatic."
She said she expects Way2Save to attract about 900,000 customers within a year, half of whom will be new to Wachovia. The company has 9 million checking customers now, and 24.5% of them also have a traditional savings account with Wachovia.
Though customers are rewarded for making purchases with their debit cards, Ms. Black said she does not expect more transactions from Way2Save customers than from those with standard checking and savings accounts. "The program was not built around debit card usage," she said.
The average customer makes 23 debit card transactions and four online bill payments a month, she said, and this should hold true for Way2Save customers. The average savings customer transfers $50 to a savings account per month; Ms. Black said she expects Way2Save customers to transfer an additional $25 a month above the funds that are moved over with each transaction.
The Way2Save product has a $100 limit on monthly transfers into the account. The limit "manages our risk," she said. "We would have a huge risk of cannibalizing our other portfolios" if customers could treat this as a true alternative to a CD.
"What we wouldn't want to have happen is this just becomes more of a rate game," Ms. Black said. After the first year the rate drops to 2% with a 2% bonus in the second and third years, and in the fourth year account holders will get a rate comparable to traditional savings accounts.
Even with these restrictions, Ms. Black said, she expects the initial 5% savings rate to turn heads. "We wanted to show people the value of compounding interest," she said. "This could get people's attention."
Bank of America introduced its Keep the Change program in October 2005. Debit card purchases are rounded up to the next dollar, and the difference is moved into a savings or money market account. B of A doubles the contributions for the first three months and pays a 5% bonus on transferred amounts for the next nine months.
A spokeswoman for the Charlotte company said Friday that it has 6.6 million Keep the Change customers.
Gwenn Bezard, a research director at Aite Group LLC in Boston, said the technology required to build such linked accounts is not all that complicated but few banks have made it a priority because debit cards do not generate as much revenue as other products.
"They don't have tons of money to throw at rewards because" interchange income on debit cards is "lower than credit cards," he said. "The problem is, the economics of debit cards are not as strong for issuers as credit cards."
However, Mr. Bezard said that "debit cards matter to consumers in a very significant way" and that accounts like Way2Save and Keep The Change are very appealing to checking customers.
Wachovia and B of A "are trying to make debit cards more appealing," he said.
Wachovia's plan to cut the account's annual percentage yield after a year of use should not affect its attractiveness, he said. "I don't think the main appeal of the product is the APY."
