Savings account rates fall to record lows
By Laura Bruce • Bankrate.com

Consumers keep stuffing cash into savings accounts and losing money in the process. It's like stuffing a sausage casing that has a hole in the end.

Bankrate.com's Fall 2003 Savings Account Survey of passbook and statement savings interest rates shows savers continue getting a raw deal. Interest rates have reached an all-time low since we began tracking them in 1987. These super-low rates don't even come close to keeping up with the economy's low inflation, so you lose money.

The national average interest rate for passbook accounts in the country's top 10 metropolitan markets is 0.50 percent, down nearly 17 percent since our spring 2003 survey. The average interest on statement savings accounts fell more than 23 percent to 0.46 percent. Click here to see the full survey.

Even though rates are skimpy just about everywhere, there's a significant difference between what you'll earn at a bank vs. a thrift or savings institution. The national average for banks is 0.38 percent on passbook accounts and 0.30 percent on statement accounts.

Thrifts, on average, are paying 0.60 percent on passbooks and 0.62 percent on statements.

There are also regional differences. Where you live plays a role in how much interest your money earns. Institutions surveyed in metro Detroit pay the most; an average of 0.93 percent for passbook accounts and 0.77 percent for statement accounts. At the other end of the spectrum is metro Philadelphia, with an average 0.29 percent for passbooks and 0.32 percent for statements.

Nancy Bush, an independent analyst and owner of NAB Research LLC, in Annandale, N.J., says banks keep dropping rates because they know consumers have few alternatives. She says the steep rise in deposits may be due, in part, to insecurity stemming from Sept. 11 and the threat of terrorism. Consumers may feel a need to hold high levels of cash. It's a decision, she says, that isn't particularly beneficial.

"Look at the debt levels. Consumers don't seem to be paying down debt, they're taking on new debt. Given the rate they're paying on credit and the rate they're getting on deposits, it's not an economically sound decision."

If you're determined to sock away money in a deposit account, at least get the best interest rate. You can find a better deal if you're willing to shop for the best place to park your savings and not settle for convenience.

A quick scan of Bankrate's high yield money market accounts shows several institutions, generally Internet banks, offering a 2 percent annual percentage yield or better. That's just about keeping pace with inflation, but at least you're breaking even. Some banks require as little as $1 to open the account, and have no fees and no minimum balance requirements.

You'd have to lock up your money for about a year to earn 2 percent with a certificate of deposit from our list of 100 highest CD yields.