The banking industry is experiencing heightened activity as consumers are increasingly inclined to deposit their money in secure savings options due to the combination of prevailing interest rates and inflation. Unlike in the past, present-day banks offer interest rates of around 4-5% for short-term savings. The banks are actively seeking deposits, leading to intensified competition among them.
But there are still some distinctions between various banks. Traditional banks have lower interest rates, which may not be as appealing as what online banks offer. However, many people feel more secure with traditional banks because they usually provide better customer service, personal guidance, and a broader selection of financial products.
To better understand the current trends, we asked consumers some interesting questions regarding their savings and investment priorities in the current situation.
Savings Account: Interest Rates And Bank Reputation Are Top Factors For Consumers
According to our survey results on the main factor when choosing a savings account, the majority of respondents (56%) considered interest rates as the primary factor. Reputation was also significant, with 32% of respondents prioritizing it.
A smaller percentage of respondents focused on savings tools (5%), mobile banking (3%), fees (2%), and other factors (2%) when selecting a savings account.
There could be a number of reasons for this. The first is the most obvious, where consumers want to get the most bang for their bucks. The available interest rate is the easiest way to determine if one account will pay more over another. You can quickly compare APYs for various accounts to see which pays more.
The fact that a large portion of respondents prioritize reputation indicates that trust and reliability are crucial considerations. People value banks with a strong history and positive reputation because they want to safeguard their money and have confidence in the financial institution's credibility. Ensuring the safety of their funds is a top priority for consumers.
With CDs, Consumers Are Even More Focused On Rates
According to our survey results on the main factors influencing the choice of a Certificate of Deposit (CD), the majority of respondents (62%) consider interest rates as the primary factor.
Reputation was important for 31% of the participants, while a smaller percentage (4%) prioritized savings tools. Mobile banking was a deciding factor for only 2% of the respondents, and 1% mentioned other factors not specified in the options provided.
CD investors are primarily seeking to maximize their returns. Interest rates directly impact the potential earnings from a CD, making it a crucial consideration for many individuals.
Similar to savings accounts, the significant percentage of respondents considering reputation suggests that trust and reliability are essential factors. Consumers value banks with solid track records and positive reputations, as they want to ensure their funds' safety and the financial institution's credibility.
Savings Accounts Are More Popular Than CDs
While the gap has closed between savings accounts and CDs, the preferred choice for most people remains a savings account. The vast majority of participants would opt for a savings account over a CD if they were given an either or choice.
There could be a number of reasons for this. Firstly, savings accounts tend to be familiar territory for most people. The average consumer has had some form of savings account since childhood, so having one can feel reassuring.
Additionally, many consumers may be wary about not having ready access to their funds. While there are short term CDs, these tend to offer lower rates than can be comparable with savings accounts. Typically, you can only access the higher rates if you’re prepared to tie up your funds for an extended period.
Short Term CDs Are Highly Preferred Compared To Long Term CDs
Based on our survey results regarding the preferred CD (Certificate of Deposit) term, 37% of respondents indicated a preference for a 1-year term. This was followed by 24% who preferred a 6-month term, while 12% each opted for 2-year and 3-year terms.
The choices of a 4-year term and 5-year term were less popular, with 7% and 5% of respondents selecting them, respectively. A small percentage of respondents (3%) chose the “Other” option, indicating different preferences for CD terms not specified in the survey options.
There could be a number of reasons why the current preference for a CD term is one year. The first is access to the highest APYs. Many financial institutions offer varying rates according to the term. Typically 3 month CDs offer quite low rates, but at the 6 month and 1-year point, the rates are usually quite attractive.
Most people are not worried about tying up their funds for 6 months or one year, but may be wary of a four or five year term. So, even if the one year rates are a little lower than longer terms, this is offset by the convenience.
Another possible reason for this term preference is the current state of the economy. With inflation rates still in flux, many people are wary about tying their money up for the long term. The average consumer would rather take a wait and see approach, committing their funds for shorter periods and then assessing the latest rates and products when each CD matures.
Savers Are Not Comfortable With CD Laddering
According to our survey, only 17% of respondents have utilized a CD ladder strategy, while the majority, 83%, have not used this investment approach.
There could be any number of reasons for this but it is likely a lack of knowledge or confidence that are making people wary of CD laddering. At first glance, CD laddering can appear highly complex and this can often be off putting for the average consumer.
The other reason could relate to the perceived hassle of CD laddering. After all, opening up multiple CD accounts is more complicated compared to opening just one. Many people hate the prospect of filling in forms and opening accounts. So, even before you enter into the thought process of creating a ladder, the strategy already has its detractors.
However, it is important to note that CD ladders can be highly effective and setting up a ladder need not be overly complicated. You can create a ladder to have a CD mature on a regular schedule to suit your specific investment goals.
Interest Rate Is Important, But It Depends
According to our survey results, 57% of respondents indicated that they would consider transferring their savings account for an additional 0.5% annual percentage yield (APY), while 43% stated that they would not consider making the switch.
We’ve already covered that the rates are one of the main reasons people consider a savings account, so it should come as no surprise that many people would consider transferring to a new savings account that offers an additional 0.5% APY. However, this graph does show that just less than half the respondents would not bother for this amount of rate increase.
Consumers may feel that this amount of increase in rate is simply not worth opening a new account, moving funds and setting up new transfers. Additionally, if you already have a good relationship with your bank, it may not be worth the risk to move to a new financial institution for such a small rate increase. So, it is likely that you may feel as conflicted as the graph shows.
Checking Accounts: Consumers Are Looking For A Reliable Bank With Great Customer Service
Based on our survey, most people (30%) think that a bank's reputation is the most important thing when choosing a checking account. After reputation, customer service (20%) and having a variety of products (20%) are the next important factors for people.
About 13% of the respondents said that fees are the main factor they consider, while 9% prioritize mobile banking. Surprisingly, only 1% of people mentioned that interest rates matter to them the most. Additionally, 7% of participants mentioned other factors that affect their decision-making process.
In today's financial atmosphere, people want to ensure that their money is in a safe and trustworthy place. That's why a bank's reputation is the most important factor for consumers when choosing a checking account. Along with that, having good customer service is crucial. It means having easy access to branches and ATMs, and getting personalized attention when needed.
People also prefer the convenience of managing their finances in one place, rather than dealing with multiple checking accounts. Surprisingly, although fees are often seen as an important consideration, only 13% of respondents mentioned them as a priority. This could be because many banks offer ways to waive fees easily for most customers, making them less of a concern.
Overall, consumers are looking for a reliable bank with great customer service and the convenience of managing their finances in one place. Trustworthiness and accessibility are key factors in their decision-making process.
Methodology
The Smart Investor conducted an online survey in the United States from May 1-26, 2023. The Smart Investor surveyed 808 U.S. adults aged 18 and above who have an interest in savings products. The survey included seven questions: 1. What are the two main factors when choosing a savings account? 2. What are the two main factors when choosing a certificate of deposit (CD) 3. What are the two main factors when choosing a checking account 4. What is your preferred choice: savings account or CD? 5. What Is Your Current Preference For A CD Term? 6. Have you ever used a CD ladder strategy? 7. Would you consider transferring your savings account for an additional 0.50% APY?
For additional questions about methodology, please contact David Katz at [email protected].
