Savings accounts are the most useful way for many people to save for a proverbial rainy day. But not all savings accounts are equally consumer-friendly.
That's according to a new report, "Savings Accounts: Their Characteristics and Usefulness," by the Consumer Federation of America, a Washington, D.C.-based association of 300 consumer education and advocacy organizations.
The report was based on an analysis of unpublished data from the Federal Reserve 2010 Survey of Consumer Finances and research of bank and credit union websites, supplemented by phone calls to many of the banks and credit unions.
Research by professor Catherine Montalto of Ohio State University for CFA distinguished between money market-type savings accounts -- which have higher balance requirements, fees and interest rates -- and so-called traditional, or basic, savings accounts, which do not have those higher-end features.
This research found that 49 percent of households had a traditional savings account with a median balance of $2,400, and 37 percent of low- and moderate-income households had one of these accounts with a median balance of $800, according to a CFA statement.
Basic savings accounts represent the best source of funds for low- and moderate-income households and many middle-income households to pay for car repairs, many medical and dental bills, and other unexpected expenses, the CFA report said.
Nearly all of the more than 14,000 banks and credit unions in the U.S. offer a basic savings account.
These accounts aren't all alike. Here's a summary of some of the report's findings.
- About 14 percent of banks required a monthly minimum balance of $25 or less to avoid a fee, while 34 percent of the banks required a minimum balance of at least $300, and half the banks had a balance requirement of $200 to $300.
- About 30 percent of the banks charged $2 or less, while 35 percent of the banks charged at least $5 per month.
- More than 51 percent of banks didn't disclose interest rates or yields on their websites, while 20 percent didn't disclose monthly fees that consumers would incur when a balance requirement isn't met.
- Sixteen of the large banks waived monthly bank fees for savers who authorized monthly transfers, typically $25 or more, from a checking account to the savings account. A few banks waived fees for savers who maintained a checking account as well as a savings account.
- Most banks paid very little interest. Only 4 percent paid more than 0.25 percent on a basic savings account.
- Some banks offered interest-rate incentives to savers who meet special conditions, such as authorizing monthly transfers from a checking account to savings.
- Many banks charged a fee if no deposits or withdrawals were made over a set period of time -- as short as six months or as long as three years. These so-called dormancy fees ranged from $1 to $12 per month.
A federal rule allows up to six withdrawals a month from savings accounts. But a minority of banks permit fewer withdrawals before charging fees.
Limiting withdrawals to only one or two per month greatly limits the effectiveness of a savings account as an emergency fund, report author Stephen Brobeck, CFA executive director, noted in a statement.
"Some savers want to build up an emergency fund, then let it sit for emergencies," Brobeck said. "If there are no emergencies, they may be whacked with inactivity fees."
- Big banks were more likely than smaller banks to require a higher minimum balance to avoid fees and to charge higher fees. But big banks were more likely to disclose these bank fees and interest rates on their website and offer innovative accounts and savings incentives. Credit unions tended to require much lower minimum balances to avoid monthly fees and tended to pay higher interest rates, though still less than 1 percent.
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