Characteristics of Savings Accounts

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The Consumer Federation of America recently released an interesting report on savings accounts. The report titled, "Savings Accounts: Their Characteristics and Usefulness" has some interesting information.

"Savings account" types include statement, passbook, and club savings accounts, money market accounts, and for credit unions, share savings accounts. 59 percent of American households hold some kind of savings account. The median amount of money held in a savings account (which includes all type of deposit accounts listed above) is $4,200.  There are over 14,000 financial institutions that offer some type of deposit account.

Higher Median Deposit Amounts in Money Market Accounts

The median amount held in a traditional savings account is much lower at $2,400 while the median amount in money market accounts is much higher at $10,000. Considering how low savings account rates and money market rates are right now, it's surprising that people are even bothering to keep money in these accounts.

A better option would be investing in a certificate of deposit account. Average savings account rates/money market account rates right now are at 0.47 percent while average 1 year CD rates are higher at 0.71 percent. Granted, rates on all deposit accounts are low right now. You won't get rich off of the interest but at least you get the best rate with a CD account.

Largest Percentage Have Traditional Savings Accounts

Breaking down the 59 percent of households that hold some type of savings account, 49 percent hold a traditional savings account while only 17 percent hold a money market account. The smallest percentage of these households (only 0.04 percent) hold some type of savings goal account like a Christmas club account.

The report also breaks down the age distribution of traditional savings account ownership. A higher percentage of those under 65 have a savings account than over 65. Slightly more than half of those age 35 to 55 have a savings account while only 42 percent of those over age 65 have a savings account. A driving factor behind this may be the fact that deposit rates are so low and retirees are investing in other interest-bearing assets to get a better return.

Majority of Banks Require only $100 to Open an Account but $200 to Avoid Monthly Fees

This tidbit of information smacks of greedy bankers taking advantage of the unwary consumer. A large majority of banks (89 percent) allow consumers to open a savings account for $100 or less. However, 59 percent of banks require account holders to maintain a minimum balance of $200 in order to avoid monthly account fees.

Half of the large banks require at least a $300 minimum monthly balance. On the low end, one fifth of the banks require only a $50 minimum deposit. The average monthly account fee isn't much, on average about $3.30. The largest fee amounts are at the largest banks averaging $3.90 a month and the lowest fees are at the smallest institutions at $2.30.

While fees are low, interest rates are also low. Fewer than half pay a rate of 0.10 percent or higher. With the average savings account balance at $4,200 earning an average rate of 0.10 percent on an annualized basis, most of the interest earned would be eaten up by account fees.

Some Banks Offer Higher Savings Rates by Maintaining a Checking Account

Banks offer incentives such as higher savings account rates by also maintaining a checking account. Setting up automatic transfers from a checking account to a savings account can also earn you a higher rate. Peapack Gladstone Bank and Empire Bank will double the savings account rate, and Regions Bank will double or triple the rate depending on the amount of the monthly deposit.

You can also get a higher account rate on a savings account by having a debit card tied to a checking account or even having direct deposit setup on an account. One of the largest banks, Bank of America, has their "Keep the Change" program that rounds up debit card purchases to the nearest dollar, transfers the rounded up amount to savings, and matches this amount for the first three months.

There is a lot more interesting information in the report including information on credit union savings accounts. You can read more in the Consumer Federation of America's report here: Savings Accounts: Their Characteristics and Usefulness
Author: Brian McKay
August 29th, 2013