WASHINGTON —Americans are losing $30 billion to $50 billion a year by keeping some $1 trillion in low-interest savings accounts and should switch to higher-rate certificates of deposit, U.S. Savings Bonds or special savings accounts that are equally safe, consumer advocates said Tuesday.
Older people tend to lose the most by not taking advantage of higher-rate savings options, according to an analysis of Federal Reserve data and a public opinion survey released by the Consumer Federation of America and Providian Financial Corp.
Elderly consumers are particularly concerned about the safety of their deposits, said Katie Smith Sloan, director of life resources for the American Association of Retired Persons.
Similarly, many moderate-income Americans are "obsessed" with savings security, said Stephen Brobeck, executive director of the Consumer Federation.
"One can’t go wrong with a CD (certificate of deposit) … or a U.S. Savings Bond," he said. With those options, he said, consumers only sacrifice some liquidity, or easy access to money without penalty, in return for higher interest rates.
Given that about one-half of all U.S. savings accounts hold less than $2,500, consumers with smaller saving amounts may wish to transfer only part of the money to higher-interest options, Brobeck said.
Traditional savings accounts and money-market deposit accounts pay on average about 2 percent annually. Rates on certificates of deposit at banks, thrifts and credit unions — also federally insured — are about 5 percent, while government-backed Savings Bonds pay 5 percent to 7 percent depending on their maturity.
The penalty for cashing in a CD early is usually several months’ lost interest. After the first six months, Savings Bonds can be redeemed by paying a penalty of three months’ interest.
Consumers also can get higher-rate savings accounts by agreeing to have deposits automatically transferred from their checking account.
For an average family, $100 a month in extra interest adds up to about $100,000 over a lifetime, according to the Consumer Federation.
The advice to consumers comes at a time when Americans are seeing their incomes grow, yet are spending all of it and more, driving down the nation’s savings rate to its lowest point on record.
Roughly 75 million Americans do not participate in any retirement savings plan and have little or no savings, according to the Treasury Department.
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