What Is a Spend-and-Save Account?

Find out what a spend-and-save account can teach kids

Young person taking money out of a wallet on the street
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Spend-and-save accounts transfer small amounts of money from your checking to your savings account. This works by rounding up your debit-card transactions, and depositing the difference in savings. You can even set one up for your child to use, if they are old enough to responsibly manage debit-card spending from a checking account.

Find out more about a spend-and-save account, how it works, and the pros and cons of having one so you can make an informed decision about whether it's a good option for you and your goals for your child’s financial education.

Definition and Example of a Spend-and-Save Account

A spend-and-save account refers to an account that allows you to automatically stash away small amounts of cash as you consume goods and services. Each time you make a purchase using the debit card attached to your spend and save account, the amount spent is rounded up to the nearest dollar. 

The spend-and-save account then takes the rounded-up portion, usually the leftover change from a transaction, and automatically transfers the money from your checking account into your linked savings account. This can be a painless way to initiate a savings strategy for people who struggle to find money to save or for showing children how to save without thinking much about it.

  • Alternate Name: Spend-to-save account

Personal finance company Aspiration’s Spend & Save account is one example of these types of accounts. If you spend $10.62 for a purchase using your debit card, for example, Aspiration rounds the purchase up to $11 and transfers 38 cents to your savings account. 

How Do Spend-and-Save Accounts Work?

A spend-and-save account works essentially by tricking yourself into saving money using your debit card as an automatic savings tool. Savings programs like Chime and Bank of America’s “Keep the Change” employ this no-fuss method as a creative way to help their customers meet savings goals. As a parent, you can share your monthly statements from the card with your child to illustrate how your spending is helping you save at the same time.

In addition, these programs can be a great way for your child to save money without really thinking about it. They’re good options for children who have trouble sticking to a savings plan. For instance, if your child already uses a debit card regularly, this can help them save up to a few hundred dollars a year, which is a meaningful amount for a child.

To participate in a spend-and-save account, you’ll need to choose a bank or financial technology company that offers them. Then, you’ll open both a checking account and a savings account. Combining the two accounts is the foundation for this method of saving money.

Fintech, the popular nickname for financial technology, combines software and technology to provide financial services.

Once you’ve enrolled in the program, you’ll typically receive a debit card that draws funds from your checking account. Your checking account will, in turn, be linked to your savings, as this is how the automatic transfers will occur. 

Next, you just use the debit card for practically anything you would typically buy. The bank or financial company does the rest. Your purchases will automatically be rounded up to the nearest dollar. After that, the cents from the rounded-up portion get automatically transferred from your checking account and deposited into your savings account. 

You also can use your spend-and-save debit card for online bill payments and recurring charges. This should allow you to collect more change for your savings plan without making additional purchases.

The more money you spend, the more funds—albeit small amounts—get moved into your savings. Finally, each of your rounded-up transactions is tallied at the end of the day and the total is transferred into your savings account on a daily basis. 

Some spend-and-save accounts allow you to choose how much to save, which means you can save anywhere from 1% to 5% of the total amount transacted using your spend-and-save account.

There may be two instances when your bank or financial company may not make the daily transfer. The first is if your account has a negative balance at the end of the day. The second: If transferring the entire amount left over from your transactions will leave your account with a negative balance.

Some spend-and-save accounts may have hidden costs like monthly maintenance fees, minimum opening deposits, or minimum balance requirements.

As you can discuss with your child, spend-and-save accounts are very similar to the old-school method of saving your change after breaking a dollar, just without spending cash outright. Say you went into a store and used your debit card to buy three items worth $12.37—that transaction gets rounded up to $13 in the program. The remaining 63 cents will then be automatically deposited into your savings account. 

Pros and Cons of a Spend-and-Save Account

Pros
  • Allows you to set up automatic deposits

  • Aims to make saving money easy for customers, and is simple to show kids

  • Saving the leftover change is money you’re less likely to miss


Cons
  • It doesn’t help you develop discipline

  • Promotes using plastic instead of cash

  • Encourages spending money to reap the benefits


Pros Explained

  • Allows you to set up automatic deposits: Automating the process helps you effortlessly build savings without conscious effort. 
  • Aims to make saving money easy for customers: When money is automatically sent to your savings account, it removes the added pressure of remembering to save. Kids can quickly see how the math works in your favor.
  • Saving the leftover change is money you’re less likely to miss. Rounding transactions up to the nearest dollar eases the savings process.

Cons Explained

  • It doesn’t help you develop discipline: Having leftover change automatically deposited after each transaction may not be the best way to reinforce thought-out, disciplined savings.
  • Promotes using plastic instead of cash: Using cash has been found to be beneficial for helping you get and stay in control of your spending.
  • Encourages spending money to reap the benefits: Spend-and-save accounts mean that you have to spend more to save more. This can lead to unintentionally spending too much in the name of trying to save more money. 

Alternatives to a Spend-and-Save Account

If a spend-to-save account doesn’t seem like the right tool for your child, consider other options to teach financial responsibility. One to consider is having a percentage of your paycheck directed into a cash-match program, such as your company 401(k) plan.

As another idea, you can deposit money in places where you can’t easily access it without facing penalties, such as a certificate of deposit (CD) or money market fund. The threat of a penalty will discourage touching your funds and improve your savings efforts.

Another alternative you can talk to your child about is a program like SmartyPig. This may be a better option to help meet your long- or short-term savings goals because it does more than just allow you to set up automatic payments. It goes a step further by helping you and your family change your consumer behaviors. For instance, it allows you to create savings goals, set deadlines, and track your progress.

You can also use your bank and credit card statements to track your own spending for at least 30 days, as one more option. This helps because once you identify where your money is going, you may be better able to find ways to save by cutting wasteful spending while discussing those decisions with your child.

For older children, giving them an allowance and letting them earn extra cash by doing chores and odd jobs around the house is a good place to start. Help them open a custodial account. That way, they’ll have their own money and be tasked with spending—and saving—responsibly, but you can also keep a close eye on things. 

Do I Need a Spend-and-Save Account?

Determining whether you need a spend-and-save account will depend on your specific financial situation. However, spend-and-save accounts are a great way to start saving money without a hassle and they make a good example of an automated savings plan for children, whether it’s your account or one opened for them. These plans also may be a good option for anyone who has trouble sticking to a savings plan, although the proceeds will be fairly limited. 

On the other hand, the very nature of a spend-and-save account requires you to spend money for the process to work. This method also encourages using plastic (your debit card) over cash. And, because the savings are automatic, a spend-and-save account doesn’t allow you to develop the discipline of a conscious savings habit while teaching your kids how to do that.

Key Takeaways

  • A spend-and-save account allows you to save money by automatically transferring spare change from debit-card transactions to your savings account from checking.
  • Spend-and-save accounts work by rounding up your purchases to the nearest dollar.
  • Spend-and-save accounts require you to spend money before funds can be added to your savings. 
  • Spend-and-save accounts work similarly to the act of saving your change after breaking a dollar.

Article Sources

  1. Langley Federal Credit Union. “Spend ‘n’ Save.”

  2. International Trade Administration. “Financial Services.”

  3. Wells Fargo. “Wells Fargo Way2Save Savings.”

  4. Sallie Mae. “SmartyPig Account.”