Put Your Savings in Hyperdrive, Part 2: Keep Your Change

Whether you’re trying to establish an emergency fund or putting money away to take your dream vacation, you can reach your goal faster by putting your savings in hyperdrive. Unfortunately, scientists have not yet perfected time travel. When they do, saving for retirement might only entail traveling back to the 18th century to deposit $1,000 in a national bank and popping back to the present to reap the rewards of three hundred years of accumulated interest.

Until modern technology catches up to science fiction, savers are relegated to more traditional forms of accelerating their income from interest. Yesterday, I wrote about opening a high-yield savings account, a set-it-and-forget-it task. The next suggestion involves creating a daily habit.

2. Keep your change. At first glance, focusing on your daily pocket change may seem like a lot of effort with too little payoff. For example, I’ve seen people who are so focused on picking up pennies from the ground by keeping their eyes down that they miss the dollar bills right in front of their faces. That’s a prime example of being penny wise, pound foolish.

Nevertheless, I’ve also seen coin jars add significantly to savings. A coworker of mine emptied her jar recently and counted $500 from the past year. This type of savings may not be worthy of your retirement plan, but it can mean the difference between renting an economy car and a convertible on vacation. A mason jar may not support your children’s education, but it might pay for internet service for a year so your kids can research their assignments online. This is significant, and the beauty is in the simplicity.

The concept is simple, but the execution is not as easy as it used to be. Back when dimes were 90% silver, cash was king. Almost all everyday transactions were handled with cash. Inflation from the last 50 years hadn’t yet eroded the value of coinage, so when you dropped your coins in a jar at the end of the day, you knew it was worthwhile.

Now, fewer transactions are handled by cash, and you have less change in your pocket when you arrive home. The change you do have has decreasing purchasing value, as well. Keeping your change in the 21st century now takes more than filling a piggy bank with your coins.

That’s not to be overlooked however. The only material needed is a jar or piggy bank, and the best placement is near your front door, perhaps right next to the spot where you leave your keys when you walk in at the end of the day. It’s quite simple to make this a habit: check your pocket or purse as you put down your keys or hang up your coat. Perhaps you won’t have anything most of the time, but it’s a habit worth creating anyway.

Once a month, or more frequently if you desire, bring the coins in the jar to your bank to deposit into your savings. If your bank has a free change counting machine this process may be easier. My girlfriend enjoys rolling coins into wraps so I don’t deny her the fun. Don’t forget that this deposited accumulated change will do much more for you in a high-yield savings account than in the standard account offered by your local bank.

Unfortunately, with the decreasing use of cash, the “analog” coin jar may not be enough. In a world where debit cards and credit cards rule financial transactions, a high-tech piggy bank equivalent may make the difference. One example was corporate-sponsored. A few years ago, Bank of America created the “Keep the Change” account offering.

Every purchase you make with the debit card is rounded up to the nearest whole dollar. When the debit card is used to make a purchase, the amount deducted from your checking account is the rounded up number. For example, if at item is purchased for $15.25, $16.00 is deducted from the account.

Of that $16.00, the difference due to rounding, $0.75, is transferred directly into your Bank of America savings account, where presumably it will earn some interest. Of the remaining $15.25, Bank of America keeps about $0.25, a standard merchant transaction fee, and the merchant receives the remaining amount, approximately $15.00.

Similarly, One from American Express is a credit card that will deposit 1% of your purchases (plus a $50 bonus after your first purchase) into a high-yield savings account.

There’s no reason for this type of cumulative saving to be tied to certain debit cards, debit cards, bank accounts. While they make it easy for you, it would be worthwhile to use all of your credit and debit card accounts as well as a better-paying savings account.

If you’re ready to put your savings in hyperdrive, then you must already track your account balances and activity in software like Microsoft Money, Quicken, or any number of web-based offerings. You’ve also presumably followed yesterday’s suggestion of opening a high-yield savings account. On a weekly basis, take a look at all your debit card and credit card transactions. Round each expenditure up to the nearest dollar. Total the excess amounts and transfer the sum from your checking account to a special high-yield savings account earmarked for whichever goal on which you happen to be focusing.

This process may be too involved for daily attention. If you review your financial activity every few days, keep a spreadsheet going with the tally and transfer the sum of the remainders to your high-yield savings once a week or once a month. The idea is to create a habit at a rate that works best for you, and everyone has different preferences.

Do what’s best for you, but don’t ignore the power of doing more with your change—and letting your extra change do more for you.