Interest on savings still low for most

Customers slow to claim higher rates from banks

For the first time in years, banks are offering savings accounts that pay serious interest. But consumers aren’t doing much about it, a new survey finds.

Roughly one-fifth of Americans with savings accounts don’t know how much interest they’re getting, according to a quarterly Paths to Prosperity study by Santander US, part of the global bank Santander. Of those who do know their interest rate, most are earning less than 3%.

“There’s real opportunity for people here to better their financial health by being aware, and by being willing to take some action,” said Tim Wennes, CEO of Santander US.

A simple internet search turns up multiple banks offering high-yield savings accounts with 4% or even 5% interest. Banks are raising those rates in response to a dramatic increase in the prime lending rate, the rate banks charge their most creditworthy customers.

Yet, customers have been slow to claim the higher rates. Another recent analysis, from Bankrate, found that 1 in 5 savers is earning 3% or more in annual interest on a savings account.

Why do savings accounts matter? Because they offer bank customers a way to stockpile funds to cover unexpected expenses, vacations and large one-time purchases. Financial experts say American households should aim to amass savings to cover at least three months of income.

“You want to have a certain amount of money in an emergency fund or a rainy-day fund,” Wennes said.

The new survey, released Monday by Santander, found a notable lack of financial literacy among consumers. Only 1 in 10 could provide correct answers to four questions about savings accounts:

Fewer than half of consumers could identify the definition of a high-yield savings account: generally, an account with a variable rate that pays a relatively high yield in interest.

Fewer than half could tell the difference between interest rate and annual percentage yield, the rate of return after compounding interest over a year.

Only one-third could identify the correct definition of a money market account, an alternative to the traditional savings account that often pays higher interest and typically includes some features of a checking account.

And only half could identify the definition of a certificate of deposit, a savings instrument in which the customer agrees to keep funds in the account for a set time.

The quarterly survey, conducted in September by Morning Consult for Santander US, reached a representative group of 2,201 banking and financial services customers in the middleincome range, with annual household incomes ranging from about $47,000 to $142,000.

More than two-thirds of those surveyed said they are on the right track toward achieving financial prosperity.