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Lack of financial education blamed for low savings rates among young workers.
May 29
Savings accounts represent a significant source of financial security for Americans, but some of the accounts are better for savers than others.
That is the finding of a survey released Monday by the Consumer Federation of America, which found that 49% families have a savings accounts with a median balance of $2,400. Among families who earn less than $36,000 annually, 37% have a savings account with a median balance of $800.
The accounts offer a ready source of funds that low- to middle-income Americans tap to repair cars, pay medical bills and handle unforeseen expenses, according to the CFA, which found the accounts vary widely by costs, rates, fees and incentives to save.
"Bank savings accounts remain the most useful way for most lower-income families to save for a rainy day, but some of these accounts are far more pro-consumer than others," Stephen Brobeck, the CFA's executive director and the study's author, told reporters.
The survey combined previously unpublished data from the Federal Reserve Board's survey of consumer finances and information gleaned this spring from the websites of the 50 banks with the largest number of branches, 100 medium-sized and small banks, and 10 of the largest credit unions.
The study also distinguished between savings or passbook accounts and money market accounts, which CFA said tend to be used by households with relatively high incomes.
Some findings "surprised" the CFA, Brobeck said. More than half (51%) of banks failed to divulge rates or yields on their websites, while 20% did not disclose the charge for failing to maintain a minimum monthly balance. Thirty-four percent of institutions had monthly minimums of at least $300, while 14% charged monthly minimums of $25 or less. Thirty-five percent of banks charged at least $5 a month to maintain a savings account, while 30% charged $2 or less.
Over half (52%) of the 50 largest banks charge customers a fee if they fail to maintain a minimum monthly balance of at least $300, compared with 16% of medium-sized banks and 12% of small banks, the CFA found. However, 90% of large banks disclose their monthly fees, compared with 75% of small and medium-sized banks, the CFA said.
Interest rates on savings mirror the low-interest rate environment. Seventeen percent of banks pay no more than 10 cents annually on a $1,000 balance, while 4% of banks pay no more than $2.50 annually on a balance of $1,000, according to the CFA. "While these saving accounts pay ridiculously low interest rates that is true for virtually all low-risk savings," said Brobeck. He added that the CFA was encouraged by higher rates some banks offer customers who set up monthly transfers from checking to savings.
Compared with banks, credit unions tend to require lower minimum balances and to pay higher interest rates, though interest rates at credit unions surveyed remained mostly below 1%, Brobeck noted. One notable exception: the 6% interest rate on deposits up to $500 that Boeing Federal Credit Union pays on savings and checking accounts, the CFA found.
Some banks will charge fees for exceeding a certain number of withdrawals, according to the CFA. For example, two Georgia institutions, Claxton Bank and Queensborough Bank and Trust, charge customers $5 for each withdrawal in excess of three per quarter.
Many banks also charge customers a dormancy fee if the customer fails to deposit or withdraw funds over time, the CFA found. Both practices limit savings accounts' usefulness as place to keep emergency funds, said Brobeck, who urged banks to eliminate any practices that discourage saving.
