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CFA: CUs Require Lower Minimums, Pay Higher Interest Rates
Tuesday, July 2, 2013 8:45 AM

A new report released by the Consumer Federation of America (CFA) revealed that basic savings accounts remain an important savings vehicle for most Americans, especially for low- and moderate-income (LMI) families, but that these accounts vary widely in terms of pro- and anti-consumer characteristics.

Compared to banks, credit unions tend to require much lower minimums to avoid monthly fees, often only $25, and tend to pay higher interest rates, though the latter are usually below one percent, the report finds. 

The report was based on analysis of unpublished data on traditional savings accounts from the Federal Reserve Board’s 2010 Survey of Consumer Finances (SCF) and research of the websites of the 50 largest banks (by number of branches), 50 typical medium-size banks, 50 typical small banks, and 10 largest credit unions, supplemented by phone calls to many of the institutions.

The findings:

  • Nearly half of all families (49 percent) had a “traditional” (or basic) savings account with a median balance of $2,400.
  • More than one-third of all low- and moderate-income (LMI) families (37 percent) had one of these accounts with a median balance of $800.
  • More than half (51 percent) of banks did not disclose interest rates or yields on their websites
  • Twenty percent (20 percent) did not disclose monthly fees (when balance requirements are not met)
  • Fourteen percent of the banks had monthly minimums of $25 or less
  • Thirty-four percent of the banks had minimums of at least $300
  • At half the banks, these minimums ranged from $200 to $300.
  • Thirty percent of the banks charging monthly fees of $2 or less
  • Thirty-five percent of the banks charged at least $5 monthly fee
  • Sixteen of the large banks waived monthly fees for savers who authorized monthly transfers, typically $25 or more, from checking to saving
  • A few banks waived fees for savers who also maintained a checking account
  • Almost all banks are using the low-interest rate environment as an excuse to pay very little interest.  The 17 percent of banks paying 0.01 percent interest or less pay no more than ten cents in interest annually on a $1000 balance
  • Only four percent of the banks pay more than 0.25 percent on basic savings accounts.

Many banks charge a fee (often called a “dormancy fee”) on savings account with no deposits or withdrawals over a period of time.  Among a couple dozen banks studied, that period of time may be as short as six months and as long as three years with monthly fees ranging from $1 to $12.

Big banks are more likely than smaller banks to require higher minimum balance requirements (to avoid fees) and to charge higher fees.  Over half (52 percent) of the 50 largest banks, but only 16 percent of the medium-size banks and 12 percent of the small banks, require minimum balances of at least $300.  Moreover, 70 percent of the large banks, but only 42 percent of the medium-size banks and 24 percent of the small banks, charge monthly fees of at least $4.