During a dinner party earlier this week a friend asked if I knew about savings programs that matched your contributions. There had been an advertisement about it in the local paper and she suspected it was too good to be true. “It’s got to be a scam,” I instinctively replied. I thought matching programs were generally limited to corporate-sponsored retirement accounts. But after a quick Google search of the term “matched savings” I discovered, much to my astonishment, an entire wave of FDIC-insured credit unions and local banks offering matched savings programs to low-income families as they pursue the purchase of a life long asset like a home or a small business. These programs actually launched in the 1980s and since then over 500 bank matching programs across the country have become available, according to the Corporation for Federation Development.
And in some cases, Individual Development Accounts or IDAs, as they’re more formally called, can be used towards saving for college costs. (Yes!) The University of Montana, for example, recently joined forces with Montana Credit Unions to offer matched education savings accounts for students who begin tucking away some money directly for college expenses like tuition and books. For every $1 qualified students save, the program will match with $3. To qualify, students must be state residents and be below twice the poverty line pursuing an undergraduate degree.
As to how effective these programs are, results from a survey of 14 IDA programs conducted by the American Dream Demonstration (ADD) from 1997 to 2001 found:
- The average length of participation in the matched savings accounts was 24.5 months.
- The average amount savers placed in their accounts was $528.
- With matched funds, the average saver had accumulated a total of $2,755.
For more on how to afford a college degree, check out:
Image: voobie, via Flickr.com