Faced with high interest rates, consumers put their money in the bank to benefit from higher returns rather than spending money. Credit unions and small banks offer the best value for disciplined savers.
newly WalletHub A survey of 300 participants revealed a change in saving and banking behaviors in response to the current high interest rate environment. Although higher interest rates make borrowing more expensive, it also means that consumers are more likely to benefit from higher interest rates as they accumulate savings balances.
As of October 2023, the highest-yield savings accounts are paying as much as 5.33%, the highest in several years.
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Smart savers took rising interest rates as a sign of slowing spending as 3 in 5 Americans are spending less due to higher interest rates. Considering that separate WalletHub The survey tracked a 270% increase in interest rates on savings accounts and a 191% increase in interest rates on current accounts over the past year, as consumers have a greater incentive to put their money in the bank.
The majority of people surveyed (56%) are keeping their money tight by stashing more in their bank accounts than last year to take advantage of higher returns.
You can use our tool, in partnership with Bankrate, to compare the best high-yield savings rates available right now.
Smaller banks and credit unions offer better value
Earlier this year, a series of Bank failure The global financial crisis shook the banking sector over five months and shook consumer confidence. This major event may have an impact on overall sentiment around smaller financial institutions. In WalletHub’s 2023 Banking Survey, 46% of respondents were hesitant about putting their money in small banks and credit unions. The other 54% did not hesitate at all.
If you’re skeptical about using small banks and credit unions, they could cost you money. Banking Landscape Report 2023 It found that credit union checking accounts are 82% cheaper than national banks with interest rates 27 times higher on average.
If your primary interest is getting the highest return on your money, you certainly won’t want account fees to cut into your returns. This is where credit unions and small banks excel. Credit unions had the lowest average account fee index at $14 compared to national, regional, community and small banks. Small banks came in second in terms of average fees at $37, while national banks topped the charts with an average of $79.
Rising debt also reduces consumer spending
Even though Americans are spending less and increasing their savings, 1 in 2 still have more debt than their savings. Taking into account the Total household debt Reaching $17.06 trillion in the second quarter, the additional debt burden is likely another factor along with inflation and other economic concerns contributing to the decline in spending.
Since consumers tend to prioritize saving, they are less concerned with credit card interest rates. According to the banking survey, 56% of respondents were more concerned with interest rates on bank accounts compared to 44% concerned with interest rates on credit cards.
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