“Hey Dad, why do people accept low APR on their savings account?”
That’s a good question, kids:
I’ve talked to a lot of people about why they’ve stuck with a bank that pays extremely low interest rates on savings accounts. Many of them have some kind of loyalty to their bank. Their family banks there. Their job banks there. They do direct deposit there. And more times than not, they’ve been banking with the same bank since they got out of High School. And in those cases, they never even considered banking anywhere else, regardless of rates, fees, or available banking products.
Others fear that if they move their money to another bank, there could be some type of computer “glitch” that would cause them to lose some or all of their money. And then there are those who just don’t understand or care about the benefits of higher interest rates, and the positive impact on their money. Oh, and let’s not forget those who say they “get it” and that they plan to make the switch, but never do. These folks just want a place to park their money and cash their checks, at least until their bank goes out of business. And yes, banks do go out of business.
Available ATM’s, oh yeah, that’s right. If they have ATM’s everywhere, I have access to my cash, so getting a higher interest rate on my savings isn’t important. Are ATM’s really that important anymore?
When we were in the throws of the pandemic, no one wanted to physically touch cash. “We don’t take cash here, there could be Covid on your money”, I heard. People got used to debit and credit card taps and swipes. Tell me really, how often do you find yourself going to an ATM to get cash? And for what?
Most banks that don’t have their own ATM’s available out there on the street, offer reimbursement of the fees paid to use other banks ATM’s. Additionally, you sometimes have the option to select “cash back” when you shop using your debit card.
The interesting thing is that the big banks know that you’re not going to readily move your money to another bank. Because of this, there is no incentive for them to increase the interest rate on your accounts. They know that you’re not going to go through the hassle with your payroll department to change your direct deposit to another bank, just to get a rate that’s 12 times higher than the national average. I know you’re thinking, “what happens if there is a computer glitch, and my direct deposit check doesn’t show up in the new account?” And so, you’re staying where you are, right? SMH
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Understanding the impact that interest rates have on your money is important. Whether you are saving or borrowing, you need to know if it means more interest earned or more interest paid. We explain.