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Despite inflation concerns, most middle-income Americans still aren't leveraging higher interest rates for savings.
That's according to a new Santander survey of roughly 2,200 middle-earning U.S. adults, conducted in early September.
Some 64% of middle-income Americans are earning less than 3% on their primary savings account, the findings show. By comparison, the top 1% average of high-yield savings accounts offer close to 5%, as of Oct. 30, according to DepositAccounts.
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The bank was surprised that 22% of consumers still don't know how much they are earning on savings, said Tim Wennes, CEO of Santander U.S.
But a lack of awareness isn't the main reason why Americans aren't taking advantage of higher rates, according to the survey. The top reason for not moving funds — applying to some 37% of respondents — was because they either don't have any savings or don't have enough to "make it worthwhile."
However, some 36% of those surveyed have at least $10,000 in savings, Wennes pointed out.
"I would argue it is worth their while" to explore higher-yielding options, he said. "Become aware, look at your statements and then take action."
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The survey also uncovered a lack of knowledge about the definition of savings products such as certificates of deposit, high-yield savings accounts or money market accounts.
Certificates of deposit can lock in higher rates
As Americans brace for another interest rate update from the Federal Reserve this week, experts say savers may consider opening a CD to secure higher rates for a set period of time. While the central bank isn't expected to raise rates, future policy shifts are still unclear.
Currently, the top 1% average of CDs are offering nearly 5.75% for a one-year term, as of Oct. 30, according to DepositAccounts.
"More and more of our customers are asking about higher interest rates," said Wennes, noting there's been a decade-high uptick in CD interest.
Compared with options such as high-yield savings or Series I bonds, top rates for one-year CDs could be a better deal, according to Ken Tumin, founder and editor of DepositAccounts.com.
Of course, the right savings option largely depends on your goals and timeline. If you need to tap the funds in less than a year, CDs typically have an interest penalty, which lowers your overall yield.
For more on certificates of deposit, check out CNBC Select's recent ranking on thebest CD rates.
In this discussion about middle-income Americans' savings behaviors amid concerns about inflation and interest rates, there are several concepts and terms to cover:
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Inflation Concerns: This refers to the worry or caution surrounding the increase in the general price level of goods and services within an economy. When inflation rises, the purchasing power of money decreases.
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Interest Rates: These are the rates at which interest is paid by borrowers (for loans) or earned by lenders (for savings). Higher interest rates typically offer better returns on savings.
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Savings Accounts: These are financial accounts where individuals can deposit money and earn interest. The survey highlights that a significant portion of middle-income Americans are earning less than 3% on their primary savings account.
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High-Yield Savings Accounts: These are savings accounts that offer higher interest rates compared to traditional savings accounts. The survey notes that high-yield savings accounts for the top 1% of earners offer close to 5% interest.
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Lack of Awareness: A notable finding from the survey is that a percentage of respondents are unaware of the interest rates they are earning on their savings.
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Reasons for Not Leveraging Higher Rates: The survey suggests that some respondents do not move their funds to higher-yielding accounts because they either lack sufficient savings or believe it's not worthwhile.
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Certificates of Deposit (CDs): CDs are time deposit accounts that offer higher interest rates in exchange for locking in the deposited money for a specified period. The top 1% average of CDs is offering nearly 5.75% for a one-year term, as per the survey.
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Federal Reserve Interest Rate Updates: The article mentions that as the Federal Reserve considers changes in interest rates, individuals may consider CDs to secure higher rates for a fixed duration.
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Savings Goals and Timelines: The choice of savings options, whether CDs, high-yield savings, or others, depends on individual financial goals and the time horizon for needing the funds.
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Interest Penalty on CDs: CDs may have penalties if funds are withdrawn before the maturity date, affecting the overall yield.
These concepts illustrate the landscape of savings options and considerations for individuals aiming to optimize their savings amidst fluctuating interest rates and inflation concerns.
