The march toward a cashless society presents a challenge for old-school savers.
If you’re not paying for things with cash, you’re not getting coins back as change. And so you’re not able to drop your nickels, dimes, quarters, loonies and toonies in a change jar and watch them accumulate over time.
Never dismiss small change as a way of making big improvements in your savings habits. You can save more than $600 a year by paying for a $2.50 coffee every workday with a $5 bill and then tossing the change in a jar. Will you be able to save this effortlessly if cash falls out of use? The answer is yes – in fact, it’s already happening in a way that beats the change jar for convenience.
An example is an app for your mobile device called Koho. It offers what it calls “RoundUps,” where purchases on your Koho prepaid Visa card are rounded up to the nearest $1, $2, $5 or $10 and deposited into your savings. If you make a $2.25 purchase, your roundup would generate 75 cents, $1.75, $2.75, or $7.75 in savings. Koho savings are held in accounts at Peoples Trust, a Vancouver-based trust company that is a member of Canada Deposit Insurance Corp.
Bank of Nova Scotia has an electronic change jar for savers called Bank The Rest. You can choose to have purchases made on your Scotiabank client card rounded up to the nearest $1 or $5 on a daily basis. Using the $5 example, a gas fill-up costing $32.08 would deposit $2.92 into a Money Master savings account.
Change jars don’t pay interest, and both Koho and Money Master accounts are similar. Koho pays no interest (it does offer 0.5-per-cent cash back on purchases made with its prepaid Visa), while Scotiabank’s website reports an interest rate of just 0.05 per cent for Money Master. Keep in mind that you can get rates as high as to 2.3 to 2.8 per cent with high-interest savings accounts at various online banks. Scotia’s own Momentum Savings Account pays 1.05 per cent to 1.95 per cent, depending on how long you leave your savings untouched.
Koho and Bank The Rest are mainly about accumulating money in the same way as you add coins to your change jar day by day. To grow your money, check out a couple of apps that take your roundup amounts and invest them in an investment portfolio of exchange-traded funds, which are basically low-cost mutual funds that trade like a stock.
The first of these apps is Mylo, which is designed to work on your smartphone. Link debit and/or credit cards to Mylo and your purchases are rounded up weekly to create an amount for investing in an ETF portfolio. Mylo charges a $1 a month admin fee for this service, or $3 for an upgraded service that includes tax-free savings accounts and registered retirement saving plans and a socially responsible investing option.
The robo-adviser Wealthsimple has a similar app – make purchases using your bank account and have the roundup amount deposited on a weekly basis to an investment account holding ETFs. There is no additional fee for roundup, but Wealthsimple charges a management fee starting at 0.5 per cent to look after your investments over time.
As with Mylo, there’s a minimal additional cost associated with the ETFs you hold. You don’t pay this amount – it’s deducted off the top of your gross returns by your ETF company (returns are always shown on an after-fee basis).
A bonus with Mylo and Wealthsimple is that they allow clients to fully invest their roundup amounts. When investing in ETFs normally, you have to buy as many full shares as you can afford and keep any leftover money sitting in cash. Mylo and Wealthsimple let you buy fractional shares, which means you can invest every cent you have.
Round-up apps can cost you if they cause an overdraft in your account when money is transferred out of a chequing account into savings. Some banks charge non-sufficient funds (NSF) fees of $45. On the plus side, you can easily transfer your accumulated savings into your chequing account in most cases. That means you avoid the task of buying coin roll wrappers, rolling your coins and then taking them to the bank. No one will miss that part of old-school saving.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, February 24, 2019