A new study by Vanguard contends against allocating cash to a bank savings account, arguing that the strategy could backfire on consumers’ savings goals.
The consumer survey, fielded by media company Big Village and with responses from 1,011 U.S. adults, reports that while close to 90% of Americans currently save or plan to save for short-term goals, 60% are uninformed with how interest rates impact savings.
Instead, consumers are likelier to allot cash into a traditional savings account— potentially miss out on key savings as a result. Vanguard’s report shows that 57% of respondents are earning less than 3% interest and 24% are netting less than 1%.
“Americans are not earning the returns they deserve on their hard-earned cash. While the overwhelming majority are saving, most aren’t saving in vehicles where their cash is getting a fair return,” said Matt Benchener, managing director of Vanguard’s Personal Investor business.
Over half of respondents surveyed (54%) put money in a traditional savings account while 39% allocate cash to a checking account, where interest rates are generally 0.41% compared to 3.65% in other savings vehicles, like Vanguard’s Cash Plus Account, the firm reports.
Despite continuing to save in traditional accounts, consumers recognize the need to change their savings behavior, especially in the current inflationary environment, the report states. Sixty-six percent of respondents plan to tweak their current savings strategy within the next year, with 44% naming inflation as the biggest driver behind their decision.
“By leveraging accounts with competitive yields and establishing intentional savings strategies, Americans can make their money work harder,” said Andrew Kadjeski, principal and head of Brokerage & Investments for Vanguard’s Personal Investor business. “We designed the Cash Plus account to give Americans a simple, effective way to save with intention and view their savings alongside their long-term investments.”
More information about the survey, along with Vanguard’s Cash Plus Account, can be found here.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.