According to the Kansas City Federal Reserve, 95.5% of U.S. households have a bank account while 71.5% have credit card accounts. Yet Plinqit’s 2024 State of Savings report paints a stark contrast: only 20% of Americans are saving money in high yield savings accounts (HYSA). The survey, commissioned by Plinqit, was conducted online by The Harris Poll among over 2,000 U.S. adults.
Why are so few consumers taking advantage of high yield savings options, and what can banks do to shift these habits while boosting deposit growth?
The Saving vs. Spending Paradox
Americans have been conditioned to think of savings as something to tackle after they manage their day-to-day spending. There seems to be many contributing factors for this, from higher cost of living and lifestyle creep to the nature of the human brain, which is wired to seek out immediate rewards or the instant gratification that often comes from making a purchase, and even the influence of social media. But according to a recent Bankrate survey, expenses are the number one reason Americans are not saving more money. With easy access to credit, many choose to rely on credit cards for big-ticket items or emergencies. Yet with higher interest rates on credit card balances, this spending strategy can quickly backfire, trapping consumers in cycles of debt.
High yield savings accounts, on the other hand, offer an opportunity to grow wealth safely and consistently. Why, when the APY on HYS accounts can be up to 10X higher than the average rate of a traditional checking or savings account, would only 20% of Americans use them? What’s driving this imbalance? For starters, many consumers may be unaware of the benefits of HYSAs or perceive them as limiting access to their funds, tied to restrictions that seem cumbersome compared to the convenience of a standard checking account or credit card.
Others may feel they simply don’t have enough disposable income to set aside in a dedicated savings account. The Bankrate survey data backs this claim, as 16% of working adults say they do not have a “good enough job” to be able to save, which may mean they feel like they do not earn enough to save.
However, it’s always a good idea to stash money away when possible, and financial institutions will play a key role in helping consumers build strong savings habits.
The Role of Banks in Changing Financial Habits
Banks have a unique opportunity to not only help consumers save more but also increase their own deposits. The key lies in simplifying the process of saving money, educating consumers on ways to save smarter, not harder, and offering incentives that resonate with today’s consumers.
Here are 4 ways that financial institutions can bridge the gap.
- Educating Customers — Consumers need to be aware of the benefits of HYSAs. Banks should provide clear, simple education on how these accounts work and why they’re important. This could be through financial literacy programs, webinars, or online content.
- Incentivizing Savings — Financial institutions can create more engaging savings programs by offering tiered rewards for consistent deposits. Gamifying savings or offering cash-back rewards for transferring funds into a HYSA could make saving feel more achievable and rewarding.
- Bundling Services — Offering HYSAs as part of a bundled account package can make them more attractive to consumers. If banks tie high-yield accounts to rewards or lower fees for other services like credit cards or checking accounts, customers will be more inclined to move their money to these higher-yield options.>
- Automating Deposits — Automated savings tools can make it easier for consumers to grow their savings without thinking about it. By rounding up purchases or setting up recurring transfers, banks can help consumers effortlessly build their savings.
The Win-Win for Banks and Consumers
For banks, encouraging the use of high yield savings accounts doesn’t just benefit customers – it’s a way to grow deposits. As consumers stash more money in their savings, banks can use these deposits to fuel lending and other financial activities, generating revenue.
For consumers, shifting focus from credit cards to savings can lead to long-term financial stability. High yield savings accounts help grow money over time, making them a powerful tool in managing both day-to-day expenses and future financial goals.
The gap between credit card usage and high yield savings account adoption highlights an important opportunity for both banks and consumers. By focusing on education, incentivization, and simplification, banks can drive deposit growth while helping Americans shift toward healthier financial habits.
Now is the time for financial institutions to focus on educating consumers and offer innovative solutions to encourage saving. The result will be healthier financial futures for consumers and stronger deposit growth for banks – a win for everyone.
