Majority of Americans are bank loyal, but many don’t know what they earn

By Sabrina Karl

Bank loyalty is the norm in America, even when you don’t know exactly what you’re getting, according to new survey data from DepositAccounts.com.

Responses from about 1,000 American consumers with a bank account show that 3 in 4 say they feel loyal to their bank (75 percent), and even more say no, they aren’t interested in switching banks (85 percent).

In fact, 40 percent of respondents reported they have never switched, with three-quarters of those adults saying it’s because they’re satisfied with their current bank.

Yet when asked what they earn on their savings account, almost half had no idea (47 percent). Not only that, but if asked what type of bank pays the best rates, 75 percent have it wrong.

About 4 in 10 believe traditional banks offer the best rates (41 percent), while 34 percent predicted you can earn the most at credit unions. Only a quarter speculated that online-only banks pay the highest rates.

Perhaps surprisingly, younger consumers were more likely to expect the most from traditional banks, with 63 percent of Gen Z and 55 percent of millennial respondents believing that’s where you can make the most of your savings.

In fact, however, an analysis of DepositAccounts.com’s data on thousands of banks and credit unions shows that the average APY earned by a savings account at an online-only bank sits at 1.52% APY. Compare that to 0.26% at traditional banks and 0.23% at credit unions.

Still, about a third of respondents said they wouldn’t consider opening an online savings account, with the most common reason being that they’re content with what they have (38 percent).

DepositAccount.com’s survey was conducted by Qualtrics in mid May 2019, among 1,005 U.S. adults with a bank account. Findings were released Aug. 5.

How to open, hold & cash out a CD

By Sabrina Karl

If you’ve never put money in a certificate of deposit before, you might wonder how much more involved it is than a savings account. The answer is that it’s easier in some ways, while a bit more hands-on in others.

The initial opening is not complicated. You’ll be asked to submit the same kind of information as you would for any other bank account. However, you’ll want to be a bit more vigilant before signing on the dotted line for a CD.

For one, be sure to carefully consider how much to deposit. Since you’ll incur a penalty for cashing out early, only invest a sum you feel confident you can keep on deposit for the CD’s full term.

Second, be sure to check the institution’s policy for early withdrawals, in case a change in situation requires you to access your money prematurely. Although paying a penalty isn’t ideal, it’s an acceptable risk if you avoid institutions with particularly onerous penalties.

Once opened, managing the CD through its term is very hands-off. You’ll receive regular statements, possibly just quarterly, documenting how much interest your certificate has earned that period. But no action will be required from you.

As the CD approaches maturity, however, you’ll want to watch for notification on how to instruct the bank on what to do with your funds at the term’s end. Though you’ll be offered to roll the funds into a new CD (and if you do not specify otherwise, this is usually the default), you’re almost always better off claiming your funds, whether it’s to shop around for the current best rate or to use the money another way.

Although CDs take a little more thought and planning up front, and careful management when they mature, the time in between is a low-maintenance affair.

When to choose a CD over a savings account

By Sabrina Karl

If you’ve never opened one before, certificates of deposit can seem daunting. But once you understand them, CDs are simply another form of savings account, just with stricter rules on getting your money back out.

So why put money into CDs, and when are they a better choice than a regular savings or money market account? The answer boils down to your time horizon for needing the funds.

The conventional wisdom on investing in the stock market is to only use money you won’t need for five years or more. So for savings you’ll want sooner than that, stashing the cash in an interest-earning bank account is often a good move.

Savings and money market accounts operate essentially the same, allowing you to deposit and withdraw funds anytime you want so long as you don’t exceed six withdrawals in a month.

These are great if you aren’t sure what you’ll use your savings for or when you’ll need it. But if you’re working towards a specific goal, like a house down payment or buying car, or simply have more cash than you’ll need for awhile, CDs offer some advantages.

For one, CDs generally pay more interest than savings accounts. You’ll need to shop around, but the interest premium over savings accounts is not hard to find, especially for certificates with terms of 2 or more years.

Second, while CDs require you to keep your money in the bank for the chosen term or risk incurring a penalty, this restriction makes it easier to resist temptation on spending down your savings.

The bottom line is that, when you’re confident you can keep your funds on hold for awhile, CDs will earn you more interest than savings and money market accounts, while also generally enforcing you’ll keep the money saved.

What if a CDs rate drops before my deposit is made?

By Sabrina Karl

So you’ve done your research and identified the top-rate CD you want to open. You begin the process of opening the account, but then wonder, “What happens if the rate drops before my deposit posts?” Or, what if the rate goes up in a few days?

Unfortunately, there isn’t one answer. It depends on the bank or credit union where you’re opening the CD, and the day of the week — or even the time of day — that you’re starting the process.

What you can count on is that CD rates can change at any moment. The rate you see today might be higher or lower tomorrow. So here are a few tips on how to minimize your risks and lost opportunities.

First, check with the bank or credit union you’re considering. Many set your rate at the time of account opening, meaning if your deposit doesn’t post for 2-3 days, you still get the rate promised when opening the account.

In most cases, though, accounts are only opened on business days. So if you open your CD on the weekend or a holiday, or after hours, your account won’t open until the bank opens. And you’ll get the rate they offer at that time. So aim to lock in during bank hours.

Even better is when banks offer a rate guarantee. With a “10-day rate guarantee”, for instance, the bank will set your CD to the highest rate available during the 10 days after opening your account. If rates rise in a week, you get a better rate, while a rate drop won’t hurt you.

There’s no foolproof way to avoid all risk from CD rate fluctuations. At some point you just have to commit. But a little homework can improve your chances of scoring the best return.

Beware if “You’ve won!”, but you didn’t enter

By Sabrina Karl

It would seem everyone’s familiar with the email that appears in your inbox saying you’ve won a lottery prize in a foreign country. But thieves are still running this scam because, frankly, it still works.

The premise goes like this: By email, snail mail, or phone, you’re told you’ve been selected as the lucky winner of a large cash prize in a lottery by ABC country. All you have to do to claim your winnings is wire the government the required taxes and fees.

Sometimes the supposed winner is even sent a check for the prize money before wiring payment to the government. Part of the scam, of course, is that the check is a fake that will bounce if you cash it.

Two red flags you can notice on notifications like this are, first, you can’t win a lottery, sweepstakes, or contest you didn’t enter. Don’t remember entering the South African National Lottery? Then you almost certainly didn’t and couldn’t possibly have won.

Second, claiming you must directly pay taxes and fees to the government is also tip-off, as all legitimate lotteries simply subtract such payments from the prize before distributing it.

Also common among these communications is that the “winner” is asked to keep the news hush-hush, claiming some mix-up of winner names. In truth, the aim is to stop the intended victim from discussing the information with anyone who might alert them that the prize is illegitimate.

As with all of the frauds we’ve spotlighted in this space, the primary goal is getting you to pay and/or provide your bank account information to a third party you don’t know. Protect your money and your accounts from these scammers by ignoring their messages, and help fight future scams by reporting the contact to the Federal Trade Commission.