Washington, D.C. – Today the Consumer Federation of America (CFA) released a report – Traditional Savings Accounts: Are They Still Popular? – addressing a key question about traditional savings accounts at banks and credit unions: Since they often pay only 0.01 percent interest – 10 cents annually on a $1,000 deposit – are these savings accounts still popular and, if so, why?
The report found that over half of U.S. households now own a traditional savings account, that the incidence has increased in this century, and that deposit levels have grown as well. Between 2004 and 2019:
- The proportion of households with traditional savings accounts rose 10.6 percent – from 47.1 percent to 52.1 percent – and the increase in this period was continuous.
- The median level of deposits of households with savings accounts rose by two-thirds – from $3,000 to $5,000 in nominal dollars (the CPI increased by only about one-third in this period).
“The traditional savings account at a bank or credit union is not dying out but is becoming more widely used by consumers,” noted Stephen Brobeck, a CFA senior fellow and the report’s author.
The report used unpublished data on savings accounts that was collected by the Federal Reserve Board as part of its tri-annual Survey of Consumer Finances (SCF). University of Utah economist Jessie X. Fan analyzed the most recent SCF data-set, which was collected in 2019 and made available in the fall of 2020. Fan and earlier, another economist had also disaggregated SCF data on savings accounts from 2004, 2007, 2010, and 2016 for CFA. The Fed’s published data does not distinguish between checking accounts, traditional savings accounts, and money market deposit accounts, combining them into a broad “transaction account” category.
The Greatest Growth in Savings Accounts Was Among Americans Who Have Moderate Incomes and Those Who Are Under 35 Years of Age
Moderate–income households – those in the second income quintile – $26,268-$45,818 – experienced especially large increases in their use of traditional savings accounts. From 2004 to 2019, the proportion of these households with savings accounts rose 12.4 percent – from 39.5 percent to 44.4 percent, and the median amount of those with these accounts rose 138.9 percent – from $900 to $2,150.
“As a group, all low- and moderate-income households increased their account ownership and their account levels, yet these remain at relatively low levels,” noted CFA’s Brobeck. Less than one-third (30.2%) of households in the lowest income quintile – those with incomes below $26,268 – held a savings account in 2019, and the median amount for these households was only $1,010.
Between 2004 and 2019, households in the top tenth income group ($192,712 and over) experienced a significant decline in account ownership – 59.7 percent to 54.4 percent – but a huge increase in median deposits – from $12,600 to $31,900. These figures can be explained in part by substantial increases in their incomes and also by their increased use of money market deposit accounts (MMDAs), which pay higher interest rates than traditional savings but impose stiff fees for not meeting high minimum balance requirements. In 2019, two-fifths (40.1%) of top tenth households held an MMDA.
Households headed by someone under 35 years of age also experienced especially large increases in ownership and levels of traditional savings. Between 2004 and 2019, ownership levels rose 12.7 percent – from 48.1 percent to 54.2 percent, while the median amount of those with these accounts rose 150.1 percent – from $1,000 to $2,501.
At an ownership rate of 48.1 percent, those 65 years and over were less likely to own a traditional savings account in 2019 than were other age groups. However, from 2004 to 2019, this account ownership grew 18.5 percent – from 40.6 percent to 48.1 percent – and deposit levels for those with accounts increased by 90.0 percent – from $5,000 to $9,500.
Why the Relatively High and Growing Popularity of Savings Accounts?
Why do more than half of U.S. households hold a traditional savings account while nearly three-fifths (58.0%) own a savings account and/or an MMDA? CFA commissioned IPSOS to undertake a survey of 2,011 representative Americans to try to better understand why. All 2,011 were first asked whether they held a savings account or an MMDA. The 1,591 respondents who indicated they owned at least one of these accounts were then asked four related questions about why they held an account.
the responses revealed that “easy access to money” and “not paying fees” were very important to large majorities: Access was “important” to 96 percent and “of great importance” to 72 percent. Not paying fees was important to 93 percent and of great importance to 75 percent. While only 43 percent said that maintaining an account as a rainy-day fund was of great importance, 86 percent said it was important. More than two-fifths (44%) also said that keeping a savings account was of great importance in making them “less likely to spend than if in a checking account,” with 79 percent saying this was important.
“Our survey suggests that most savers want an easily accessible and free way to maintain a rainy-day fund that will be more difficult for them to spend than if the dollars were in a checking account,” said CFA’s Brobeck. Certainly the fact that the Federal government guarantees funds in these accounts is also a factor.
According to George Barany, director of America Saves at CFA: “Having easy access to a no-fee savings account with a low opening balance has been very important to the many lower income families seeking to establish an emergency fund, who have participated in the America Saves program.”
But why then did traditional savings account ownership and levels grow? The report suggests three factors, two of which are related. “The Great Recession is likely to have convinced some families that they should open a savings account or increase the amount in an existing account,” said CFA’s Brobeck.
Yet, institutional changes are also likely to have had an impact. There has been a national savings movement, largely directed at young adults and lower-income households, much of its funded by the Ford Foundation, that began in the nineties and continues to this day. CFA itself has initiated local savings campaigns, which use social marketing and behavioral economics principles, in dozens of cities and coordinates national efforts as well. America Saves Director George Barany noted a recent example of one such effort: “During America Saves Week 2021, more than 300,000 people deposited over $400 million into new and existing accounts in 16 participating financial institutions.”
A key goal of this savings movement has been to persuade banks to offer and promote free savings accounts that were bolstered by regular, automatic transfers from checking (or an income source) to savings (autosaves). Today, all but one of the 13 largest banks (by number of branches) offers a savings account that waives monthly minimum balance fees for those with a checking account at that institution or those using autosaves. Moreover, over half of these banks promote savings on their websites. Credit unions have always required that customers open a savings account in order to qualify for membership.
“The future of savings accounts depends largely on the willingness of banks to maintain and promote no-fee accounts,” said CFA’s Brobeck. “If banks do so more energetically, we can expect continued growth in the popularity and levels of savings accounts,” he added.
“Consumers would also save more if banks paid higher rates,” noted CFA’s Brobeck. “The gap between savings interest rates and consumer loan rates is substantial and growing, as a future CFA study will document,” he added.
Contact: Stephen Brobeck, firstname.lastname@example.org