Passbook, statement savings account yields languish
By Laura Bruce • Bankrate.com

The Federal Reserve has raised its benchmark interest rate, the fed funds rate, 17 times since 2004. But, Bankrate.com's semiannual survey shows, the yields on basic savings accounts have barely budged.

Bankrate's fall 2006 survey of passbook and statement savings accounts offered by the largest institutions in the top 10 metropolitan markets shows that the average yield on a passbook savings account rose 0.01 percent, to 0.60 percent, since the previous survey in April. The average for statement savings accounts stayed flat at 0.54 percent.

Thrifts take somewhat better care of their customers than banks by paying 0.70 percent on passbook accounts versus 0.41 percent from banks. On statement accounts, thrifts pay an average 0.64 percent, while banks dole out 0.45 percent.

Every six months, Bankrate surveys 100 institutions to find their passbook and statement savings rates. The survey is of the five largest thrifts and the five largest banks, as determined by the amounts of deposits in each of these 10 markets: New York, Los Angeles, Chicago, Philadelphia, San Francisco, Detroit, Boston, Houston, Dallas and Washington, D.C.

Passbook and statement savings accounts are the most vanilla banking products. They offer complete liquidity -- that is, you can take out your money at any time. The difference between the two is in their method of tracking your money. A passbook account tracks deposits and withdrawals via a booklet the customer brings to the bank; a statement savings account relays that information to consumers via a mailed statement.

Yields adrift
While the yields may drift a few basis points one way or the other from survey to survey, the story remains the same: Banks get away with paying very little interest on these accounts because too many customers don't care. The accounts are a convenient place to stash a few dollars that might be needed in an emergency, but these accounts have billions of dollars in them. It's a safe bet many individuals are lending banks thousands of dollars and getting a pittance in return.

There are high-yielding alternatives for those willing to comparison shop. Put $5,000 in a savings account at E-Loan, for example, and you'll earn 5.5 percent. You'll reap $275 interest in one year. At the national average, you'll earn only $30 in a passbook savings account.

Going nowhere
The Federal Reserve has raised the fed funds rate 17 times since June 2004, but passbook and statements savings yields have flat-lined. Many institutions take advantage of consumer inertia -- these accounts are convenient and customers often don't bother to move their money to high-yielding savings and money market accounts.

Bankrate's savings and money markets database lists the best yields from our surveys. There are even a few online banks with interest-paying checking accounts that pay better than traditional savings accounts, but watch out for fees and high minimum balance requirements.

If you prefer using your brokerage, see what interest is being paid on its money market accounts. You can set up an electronic transfer and simply take excess money from your bank savings and send it to your brokerage, where it will earn a much better yield. It can take a couple days for these transfers, so make sure it's not money you'll need tomorrow.