Only 25% of Americans have a high-yield savings account, according to Finder’s Consumer Confidence Index. While it’s surprising that more Americans aren’t capitalizing on the advantages of higher interest rates, when I consider how my family and friends bank, it lines up. Despite the allure of better returns, the reasons behind their reluctance to open or switch to stronger bank accounts remain unclear.
I’ll often encounter family and friends expressing dissatisfaction with their low-yield accounts, prompting me to introduce them to appealing high-yield options. However, months later, I’ll discover that their money is still sitting in an account yielding a low 0.01% APY.
This sparked my curiosity, motivating me to find out why Americans are reluctant to open a new account or make a switch. The two main reasons, as per Finder’s study, revolve around the inclination to keep their checking and savings account under the same bank and a lack of knowledge — both accounting for 29% of respondents.
Keeping money at the same bank
While the convenience of keeping your money within the same bank certainly makes things easier in some respects, it might still be beneficial to make a switch or open another account at another bank. Beyond lower fees and higher rates, there’s another reason to make a change.
Keeping all your money in one bank could expose you to a potential loss if the bank fails, since you’re often only insured up to $250,000. So if you have more than this amount in one bank, you’re at risk. Also, when it comes to transfers, nowadays, banks provide online platforms that make it easy to link to an external bank account and set up automatic transfers. So transfers shouldn’t prevent you from opening a higher-yielding account.
Lack of knowledge
Most individuals rely on suggestions from their family and friends when making purchasing choices, especially when there’s a lack of knowledge or experience with a particular product.
This extends to the realm of banking as well, with 48% of Americans choosing the same bank their parents use. Considering that most individuals open accounts around the age of 20, this decision might be attributed to both trust in their parents’ choices and a potential lack of understanding or experience in banking.
When I asked my family friend why they haven’t switched, they revealed a similar sentiment, attributing their choice to a lack of clarity and understanding. They expressed, “The way in which banks communicate information about their products seems tailored to individuals well-versed in banking and with a comprehensive grasp of all the terminology.”
Another family friend shared that they thought a high-yield savings account was an entirely distinct product, stating, “I didn’t realize it was like a traditional savings account with the only actual difference being a higher rate.”
A high-yield savings account isn’t a new type of product, and there’s no learning curve required to open and use. The primary difference is that you’ll earn a stronger yield higher than the national average, which currently rests at 0.42%.
Another difference is that if you’re considering switching over, you’ll need to be comfortable with online banking. It’s common for online banks to offer high-yield accounts, since they don’t have the same overhead expenses associated with brick-and-mortar banks.
If having a local branch and receiving in-person support appeals to you, you can still enjoy the best of both worlds. You can keep your accounts at your traditional bank and open a high-yield account with an online one. This approach would allow you to increase your earnings and conveniently set up transfers between the two banks.
Bottom line
In a financial landscape shaped by many options, it’s surprising that only a quarter of Americans utilize high-yield savings accounts, while the majority remain tied to traditional, low-yield accounts.
The resistance to explore more lucrative avenues is rooted in misconceptions, a preference for the familiar and a lack of financial understanding. Bridging this gap is essential to empower individuals to make informed financial decisions and unlock the benefits of stronger options.
High-yield accounts aren’t complex financial instruments but rather enhanced versions of traditional savings accounts we all know.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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