Why Do People Stash Money in Low Rate Accounts?

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Someone, please answer this question! Why do the masses still stash their money in low rate savings accounts from the big banks like BofA, Citibank, and Chase? There is a big difference between their rates and the market leaders.

I wanted to kick off my inaugural post by asking a question. Bank of America, Citibank, and all of the other big banks open far more accounts than their higher interest rate online brethren. Why then do these banks have 100X the deposits of the online banks? Why do most people stash their cash in a lower rate account? Especially cash that they aren't going to touch for awhile. I can understand wanting my checking account at BofA, but I'd want my savings and CD money earning the highest rate possible. Let's take a look at the difference.

According to the BestCashCow savings rate charts, the highest rate for a $1 minimum deposit account is FNBO at 6%. FNBO is FDIC insured and is actually the online group of the First National Bank of Omaha, which has been around for the last 150 years. Your money is safe there, at least up to $100,000.

A quick check on the BofA site shows that their regular savings rate, with a minimum balance of $300 has a whopping rate of .2% APY. Yes, you read that correctly, .2%. That's a full 5.8% below FNBO.

Okay, so BofA likes to reward their rich customers with better rates. Let's see what some of those premium savings accounts yield. I looked for a better yielding account but couldn't find one so finally settled on their high end checking account. The rate there was .05% APY. You read that right.

Countrywide is the biggest bank on the chart at 5.4% while HSBC is further down at 5.05%.

Clearly the big banks don't want our deposit money. Either that or they expect that that we will keep money in low rate accounts either because of convenience or sheer laziness.

So, one of the easiest ways you can make some easy money is to get off your duff and take a look at the other rates out there.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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  • eggshell

    August 03, 2007

    I bet the big banker, low rate crowd is mostly older.

  • William Li

    August 03, 2007

    Some of the large money center banks offer their high net clients access to savings accounts earning close to 5%. For these clients, it isn't worth the hassle of moving around $100,000 in order to get 6% at a bank that they are not familiar with.

  • Dave Lloyd

    August 07, 2007

    I think (1) most people do not focus on the cash portion of their investments, (2) most people do not understand the value of compounding interest, and (3) most people do not have time. This website is an excellent resource of savings and CD rates - the best that I have found in years of looking on the internet.

  • justMeaGirl

    August 12, 2007

    Internet banks usually have higher rates because of less overhead, but internet banks are scary for some especially when one is older and use to walk into banks doing business. the one on one contact afterall is what still matters the most when doing business

  • tightwad

    August 12, 2007

    Most people I know don't even think about it. They assume that all banks pay about the same rate. Many older folks believe that their long time banks are giving them the best deals. I know several 60 to 90+ year olds who will continue to roll over 2 and 3 percent cd's. These same folks rely on that interest income to survive, yet will not walk across the street and leave "their" long time bank to double their money. Big banks take advantage of people like this imo. I hate to say it, but loyalty in banking is a thing of the past. They don't care about the average depositor, so why should we bother to be loyal....Plus, the majority of the US doesn't have a pot to piss in when it comes to a savings account.

  • BankMan

    August 12, 2007

    I guess it really is inertia and fear, especially from older people. Banks will have to watch out though because the younger demographic doesn't have the same barriers and concerns.

  • fatig

    August 12, 2007

    I think it's several factors. Some are scared, unnecessarily so because the banks are all FDIC insures, and some are just to lazy and used to the old process. I do agree though that this is changing. I used to work at a bank and the most profitable customers were the old CD holders who parked their money, never used the banks services, and simply let their money roll over. These people don't even know about high yield savings accounts.

  • carragh

    August 18, 2007

    I enjoy getting a toaster each time I open an acct.

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