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The "Optimal Savings" Option


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Entry for the 'Raise the Rate' contest sponsored by TIAA-CREF.

Published in: Business, Economy & Finance
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The "Optimal Savings" Option

  1. 1. Spend money, Save money. Effortlessly and Effectively.
  2. 2. Getting to 10% in two years. Can it be done? Image with permission from the Tycoon Report
  3. 3. These days, Americans habitually spend money when they know they should be saving it. There is a demand for a comprehensive system to help every American save money proportionately to their spending. The “Optimal Savings” Option is a service that constantly builds savings by consistently putting a percentage of a person’s spending automatically into their savings account. So when you’re spending, you’re saving.
  4. 4. The “Optimal Savings” Option would be a voluntary service provided through a person’s bank. It would transfer a set amount of $0.05 to $0.25 from a person’s checking account into their savings account for every dollar they spend in all debit transactions made from their checking account. Below a balance of $50, the option would be put on hold. The option would adjust the amount saved on transactions that put the balance below the minimum. Text and email notifications would inform a person when their balance is at the $50 minimum. Online banking and smart phone apps would track spending and savings.
  5. 5. The option would apply to transactions made through a debit card. People could choose to have ATM transactions apply or not. Saving accounts would have a low startup and required minimum balance of $50. To encourage a high savings balance, savings interest rates would increase in levels as the balance grew. To discourage excessive withdrawals, a 24-hour period would be required to withdraw funds over $100 and there would be only one free withdrawal per month. Extra withdrawals could be made with a $20 fee.
  6. 6. Computer software is technologically advanced enough to design a program to successfully orchestrate The “Optimal Savings” Option. The savings accounts for this option have lower minimums so more people can have the means to use it. A minimum checking balance hold provides security for people who regularly overdraft. Savings account withdrawal restrictions and interest rate increases encourage people to deposit and keep their money in savings, but allow for access if the need arises.
  7. 7. $ Available Spending $ Saved $0.05 $ Saved $0.10 $ Saved $0.15 $ Saved $0.20 $ Saved $0.25 500 25 50 75 100 125 1000 50 100 150 200 250 1500 75 150 225 300 375 2000 100 200 300 400 500 2500 125 250 375 500 625 3000 150 300 450 600 750 For a person to choose the rate of savings for them, they would look at how much they spend on debit in one month, such as $500. Then they would decide how much less they could afford to spend, such as $50. This person would be use the $0.10 option. If another month, they had $1000 to spend, they would save $100 of it. They would always be saving 10% of their available debit spending.
  8. 8. Society in the United States gravitates toward what is most convenient. The “Optimal Savings” option needs little user input to work safely after it is put in place. It’s rate options give it the ability to be useful to all income levels and would bring saving money into reality for more people. Many Americans aren’t savvy with money. This service doesn’t require a person to proactively save or even think about saving at all. A person could still spend until their account hits zero and save without even noticing.
  9. 9. Transactions Savings Debits Credits Balance DEBIT (1.00) (10.75) 523.80 DEBIT (1.50) (15.66) 535.55 CHECK (390.00) 552.71 DEBIT (17.50) (174.84) 942.71 DEPOSIT 1100.00 1135.05 DEBIT (0.00) (3.52) 35.05 ATM (3.90) (50.00) 38.57 ATM (10.00) (100.00) 92.47 DEBIT (3.80) (37.98) 202.47 TOTAL (37.70) (782.75) 1100.00 This example of an online checking statement demonstrates a person who chose $0.10 and applied the option to ATM transactions.
  10. 10. Transactions Savings Debits Credits Balance DEBIT (1.00) (10.75) 523.80 DEBIT (1.50) (15.66) 535.55 CHECK (390.00) 552.71 DEBIT (17.50) (174.84) 942.71 DEPOSIT 1100.00 1135.05 DEBIT (0.00) (3.52) 35.05 ATM (3.90) (50.00) 38.57 ATM (10.00) (100.00) 92.47 DEBIT (3.80) (37.98) 202.47 TOTAL (37.70) (782.75) 1100.00 This example of an online checking statement demonstrates a person who chose $0.10 and applied the option to ATM transactions. The option adjusts on the transaction that puts the balance below the $50 minimum and is then on hold.
  11. 11. Americans want to have a decent savings, but they also want and need to spend. The “Optimal Savings” Option is appealing because it allows people to combine the two. People would take advantage of this option because it works with their specific needs to build their most optimal savings without a huge lifestyle change. It works with manageable percentages, so even low- income families, individuals, and college students would be able to save effectively on a limited budget.
  12. 12. It’s true that banks have already begun to offer automated savings programs. Some add just the cents, some move a dollar per debit transaction, and others move a set amount you decide on a schedule. This option is different because it’s responsive. Basing savings on percentages is optimal because it’s precise. By incorporating a system like The “Optimal Savings” Option into everyday banking, impactful saving can become a prevalent part of American society. Implementing a wait-period for large withdrawals and penalizing excessive withdrawals prevents people from becoming their own worst enemy. Waits and penalties mean having to think about purchases that could derail financial goals.
  13. 13. 0 50 100 150 200 250 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Trillions Saved Trillions Spent ApplicableIncomeinTrillions If 18 million Americans had $900 to spend in debit and/or ATM transactions in one month and they all used the option to save $0.10 for every dollar spent, each would have put $90 in savings and together, they would have put $1.62 trillion in savings after just 30 days. (At the same rate, that’s $19.44 trillion put in savings after one year!)
  14. 14. It can be done! Taxes are calculated with percentages based on a person’s income and spending. Bank savings programs can work this way, too. By offering flexible options, anyone can consistently save money. The “Optimal Savings” Option provides a seamlessly beneficial service to everyone with a checking account and debit card that helps them to build a secure financial future. “Unity is the secret of social progress, and service to society is the means to promote it. ” Sri Sathya Sai Baba
  15. 15. All images used in this presentation are with licensed or written permission and are royalty- free.