In response to one of my favorite blogs, Dumb Little Man, (which isn’t in the least bit dumb!)

I keep hearing ads on the radio for that “keep the change” credit card. You know, the one where you spend money on something with your card, and the card company rounds the amount up to the next dollar and puts the change into a savings account for you. The premise is that you then are astonished to find out that you actually have more money than you thought you did, and it was all so easy because the credit card folks took care of it.

This is SUCH a dumb idea, on so many levels. To me, it ranks right up there with the old “Christmas Club” savings accounts that the banks used to hype the hell out of when I was a kid. (Those were savings accounts that had mandatory deposits and paid no interest whatsoever, just for starters.) Dangle a dubious reward in front of the financially naive, though, and they’ll go for it every time, whether it be a bit of pocket change siphoned off the top of a credit card that charges you interest, or a savings account that gives you your own money back at Christmas time. And don’t get me started on tax refunds.

Where does the money for the rounding-up come from? Is it a gift to you from the credit card company? Or are you paying it to yourself when you pay the credit card bill? They never seem to go into detail about this, either. I can’t picture a credit card company giving you free money. And if they mention the interest rate on these cards, it’s in that bit at the end that sounds like they sped it up about 50x. So, are you using a card that has a 15% interest rate (or more) to put a few cents into a savings account that pays… what? And what happens if you don’t pay the bill off in full?

Cue the sound of Robert Preston saying “Think, men, think!”

I’ve also seen people on message boards here and there talking about how they or someone they know do the same thing with their checkbook. They round up to the next dollar and write that amount down, and gee whiz, when the check statement comes in they’ve got more money in the account than they thought they did.

Unless of course they’d figured they had more money in the account than what the register said and spent it all, at which point they’d get a very precise overdraft charge from the bank.

And, of course, more and more people are using debit cards in lieu of checks these days, and keeping track of the balance in Quicken or MS Money or something similar. Sure, you can round-up a check you’re typing into your software, but what do you do with the checks you write with your software to pay bills? (Write it for the correct amount, print it out, then go back and round-up the amount in the register?) What do you do about amounts that you have deducted from your checking account automatically? For that matter, when you go to reconcile your account in Quicken (et al), what do you do with the “extra” money?

The easiest way to save money is to not spend it in the first place. The easiest way not to spend it is to convince yourself you don’t have it to spend. And the easiest way to do this is to have an automatic deduction from every paycheck, into a savings or money-market account. Some employers will even do this for you automatically, especially if there is a company credit union. But it’s easy enough to set up with your bank.

Start off slow, so you get used to having a smaller paycheck to spend. Once you’ve adjusted to that, raise the amount of the automatic deduction a bit at a time. Of course, you have to adjust your spending accordingly, but not having extra money to blow on stuff you don’t need is not such a bad thing.

And don’t transfer that money back out of savings for anything other than a genuine financial emergency. And if you do have to transfer it back to checking, try to increase the amount you take out the next month so the withdrawal gets put back.

You’ll have a lot more “change” to keep this way, and you don’t need a credit card at all.

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