If reading Freakonomics taught me anything it’s that people respond to incentives. I hope for Canadians’ sake that this economic touchstone is true when it comes to saving money. BMO has provided the incentive, now it’s time to see how we respond.
The Bank of Montreal (commonly referred to as Bee-Mo) recently announced a new type of savings account that is designed to reward you for saving more. The idea is that if BMO offers you a bonus 1% interest rate on their new Savings Builder Account – in addition to their regular rate of .3% – you will be more inclined to save your hard-earned cash. For a limited time, until June 30, 2015, folks that toss money in a Savings Builder Account will not only have access to these bonus perks, they will also get an introductory rate of 2.5% interest – which is almost unheard of in this low interest rate environment.
There is a bit of a catch though – although in this case “the catch” is actually to your long-term benefit. In order to take advantage of this 1.3% interest rate after June 30, 2015, customers will have to save $200 or more every month. BMO is hoping that by giving Canadians an ambitious-but-achievable goal to shoot for, more folks will be motivated to develop positive savings habits and “Save. Earn. Repeat.”
This might be the best savings account offer on the market right now and I really like the principle behind the idea of rewarding Canadians that are trying to help themselves. Despite what many financial gurus like to claim, saving $200 per month isn’t always easy for young Canadians that are trying to make rent, pay off students loans, and/or increase their education credentials. That being said the new Savings Builder Account is a great tool to use as you save up a down payment on a house, or for another short-to-medium term financial goal.
If you find that you aren’t able to sock away 200 bucks during a particular month you won’t get the 1% bonus interest rate that BMO is offering; however, the good news is that you will continue to get a better interest rate than your chequing account likely provides and you will have another opportunity to earn the bonus interest rate again the following month. Each month the $200 goal refreshes and you simply have to increase your overall balance by $200 or more in order to qualify.
While I recommend looking into other investment options such as index funds for long-term goals such as retirement, the Savings Builder Account represents a simple and efficient way to build positive savings habits and to earn a little more on the cash you have sitting in the bank. The $200 goal is a useful guide to use when making your overall savings plan. Kudos to BMO for raising awareness around the benefits of regular, habitual saving, and for giving Canadians a solid goal to aim for.