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A war for high yield deposits: The view from the consumer

  • Fintechs and banks are competing for customers by offering high yield savings accounts.
  • The question is whether people know or care these options exist.
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A war for high yield deposits: The view from the consumer

Alternative lenders, challenger banks, and asset managers are battling for consumer deposits. In addition to being a sticky product, deposits are generally a much cheaper source of capital than other options.

Last week, Personal Capital launched its own high yielding bank account. To accompany the launch, the early robo-adviser also published some survey data it polled to probe just how much thought Joe Consumer puts behind savings options.

Majority of Americans have savings accounts

From the Personal Capital data, it appears a slight majority of Americans say that they have a savings account at a bank. That leaves over 40 percent of the population without a savings account (or at least, they don't think they have a savings account).

But, I'm not sure how much it pays

Savings accounts are kind of like set-it-and-forget-it financial products. 30.6 percent of the people surveyed said that they know the current interest rate on their savings accounts. On the other hand, nearly 50 percent of Americans said that they don't know what their savings account currently pays. That means, if they're near the average savings rate offered by American banks (0.10 percent), they're probably leaving a lot of money on the table by not switching to a higher yielding account that are popping up.

People assume their interest rate is the average (and they're generally right)

When asked what they thought was the average interest rate for a savings account in the US, the largest cohort replied in the range 0 to 0.25 percent. That's pretty accurate -- the actual average savings rate right now according to the FDIC is 0.10 percent. 41 percent of respondents believe that the average interest rate is around this level.

Do you know about high yield savings accounts?

Next, individuals were asked if they knew that high yield savings accounts existed. They were given 3 options: Yes, I have money saved in one; Yes, but I do not have money saved in one; and, no. 15.1 percent of Americans said that they know what this type of account is and that they have one. 30.1 percent said they know what high yield savings accounts are but they don't have one. 54.8 percent said they didn't know what an account like this was.

Frequency account holders checked their interest rates

The majority of Americans neve checked what their interest rates are. Some of this complacency can stem from the fact that interest rates have hovered around zero for years. There's also a lot of friction in moving banks which could add to this complacency. As interest rates rise and competitive fintech and consumer banks compete around higher yielding account offers, some consumers are starting to pay more attention.

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