Low Interest Rates, High Inflation Impact How Americans Save

Is a savings account a good place to keep your reserve funds? Americans are looking for an answer as low interest rates dampen the incentive to sock money away while high inflation acts like a thief that even the thickest vault doors can’t stop.

According to a new NerdWallet online survey conducted in April by The Harris Poll among over 2,000 U.S. adults of which over 1,000 have money in a savings account (referred to as “savers” throughout), about 7 in 10 (71%) savers changed how they saved in response to rising inflation while nearly 4 in 5 (79%) made a change in 2021 in response to low interest rates.

The desire to protect your savings makes sense. But NerdWallet’s savings expert says there’s still value in this type of account despite historically unfavorable rates.

Key findings

​​Low interest rates are leading people to reallocate savings. Nearly 4 in 5 savers (79%) say they have changed the way they allocated savings in 2021 because of low interest rates.

Interest rates are low, but the top savings account alternatives have even lower returns. The top two alternate destinations for savings dollars — keeping more cash in checking accounts (41%) and keeping more cash at home (27%) — don’t earn better returns.

Meanwhile, some savers chose riskier alternatives. About a quarter of savers (26%) bought cryptocurrency with funds they would otherwise have put into a traditional savings account as a result of low interest rates and nearly the same proportion bought a stock or mutual fund (25%).

If savings account interest rates rise, expect behaviors to keep shifting. Most savers (80%) say higher savings account interest rates would cause them to take action, like saving more (37%) or moving money to another bank with higher rates (31%).

Savers are responding to inflation. About 7 in 10 (71%) savers say they changed savings habits because of the recent rise in inflation.

Inflation is affecting everybody. More than 1 in 5 savers across four annual household income ranges report dipping into savings to help cover rising prices for regular expenses:

• 23% with an annual household income of less than $50,000.

• 33% with an annual household income of $50,000-$74,999.

• 22% with an annual household income of $75,000-$99,999.

• 30% with an annual household income of $100,000 and up.

Savings account trends in the U.S.

Savings accounts are nearly ubiquitous in the U.S. In 2019, 98% of U.S. families had a transaction account — which includes savings accounts — and the typical balance of these accounts was $5,300, according to Federal Reserve data.

The NerdWallet survey shows the balance in savings accounts in particular varies across many demographics.

Home ownership

Among homeowners, 23% have $15,001 or more in savings compared to 6% of renters. Among renters, 35% don’t have any savings compared to 15% of homeowners.

Marriage

Married Americans are more likely to have $15,001 or more in savings: 29% compared to 9% for Americans who aren’t married. Married Americans are less likely to have no savings: 13% compared to 28% of Americans who aren’t married.

Race/Ethnicity

Having a savings account balance greater than zero but $15,000 or less is about even among Black (not Hispanic) (38%), Hispanic (42%) and white (not Hispanic) (36%) Americans.

However, differences emerge among those who have more than $15,000 in savings. For example, 22% of white Americans have $15,001 or more in savings compared to 10% of Black Americans and 9% of Hispanic Americans.

Gender

Men (25%) are more likely to have savings of $15,001 or more than women (12%).

Low interest rates are affecting savings behaviors

Historically, a good argument for keeping your money in a savings account instead of under your mattress has been the ability to earn interest. However, interest rates have been low for a while, and the national average currently stands at 0.06%. You might find a slightly higher rate in some high-yield savings accounts, but nothing that gets close to the 2% mark last seen in 2019 — not to mention the rates seen before the Great Recession in 2008.

In response to low interest rates, nearly 4 in 5 savers (79%) say they have changed the way they allocated savings in 2021.

The most cited change was keeping more cash in a checking account (41%), even though checking accounts typically earn less interest than savings accounts. Keeping more cash at home is even less lucrative than a checking account, but it was the second most common change overall (27%). These actions perhaps prioritize convenience over returns.

But some savers also moved money to financial instruments that do come with the possibility of higher returns — and an increased possibility of loss. About 1 in 4 savers bought cryptocurrency (26%) and stocks or mutual funds (25%) with money they would have otherwise saved as a result of low interest rates.

“Interest rates on deposit accounts may be low right now, but it’s still important for consumers to keep liquid cash on hand in case of an emergency,” says Chanelle Bessette, a NerdWallet banking expert. “The national average interest rate for savings accounts is currently only 0.06%, but there are plenty of high-yield savings accounts that offer closer to 10 times that. These rates won’t beat inflation, but they’ll protect the value of your cash more than a low rate savings account or just keeping cash at home. Even if you want to try investing your cash — which is inherently a riskier option — having money in savings is always a good idea.”

Savers are willing to try riskier alternatives

Interest rates might be low, but a savings account typically isn’t the place to go looking for big returns anyway — that’s what options like stocks can offer, though they also have the potential to lose value.

A subset of savers are willing to forgo the safety found in savings accounts in pursuit of gains: In 2021, 26% of savers bought cryptocurrency and 25% bought a stock or mutual fund with money they would have otherwise saved as a result of low interest rates.

Who’s behind this trend? Men are more likely to make these riskier moves, with 38% buying cryptocurrency and 34% buying a stock or mutual fund in 2021 with money they would have otherwise saved compared to 12% and 16%, respectively, of women.

People of all ages show a willingness to move dollars that had been earmarked for a savings account to a riskier option, though the interest in swapping dollars for cryptocurrency drops off for those ages 55 and above. Of savers ages 18-54, 38% bought cryptocurrency in 2021 with money they would have otherwise saved as a result of low interest rates — compared to just 5% of savers ages 55 and up.

Married savers are more likely to have bought cryptocurrency (31%) and stocks or mutual funds (29%) in 2021 with money that would otherwise be put into a savings account due to low interest rates than savers who aren’t married (21% each, respectively).

Savers who are parents of children under 18 are also much more likely to have bought crypto (43%) or stocks and mutual funds (31%) than those who are not parents of children under 18 (15% and 21%, respectively).

Note that this survey did not ask how much a person reallocated to cryptocurrency, stocks, mutual funds or any of the other financial accounts listed. It could be that someone bought $5 of Bitcoin with money they would have saved. However, these results show that savers are willing to consider storing savings in a variety of places, including those with a higher risk of loss.

Would higher interest rates change behaviors?

The Federal Reserve raised rates twice in early 2022 and has signaled it will continue to do so throughout the year. Homeowners have felt the downstream effect of this change in the form of higher mortgage rates that have risen by about 2 percentage points since the beginning of the year. Savings account interest rates have only ticked up slightly in comparison, but there’s a good likelihood they’ll continue to go up.

“When the federal funds rate goes up, banks usually start to increase interest rates not only on loans and mortgages but also on deposit accounts,” Bessette says. “This means you may want to keep an eye on what banks are offering in the next few months so that you can shop around for the best interest rates. Some rates have crept up to 1.00% APY or more already.”

If and when the rates increase, a majority of savers (80%) say they will take action:

• Save more than I currently am (37%).

• Move my current savings account balance to another bank in order to earn a higher rate (31%).

• Transfer money I currently have in other, nonsavings accounts to a savings account (31%).

• Spend more time learning about high interest savings accounts at other banks (27%).

• Open a new savings account (25%).

• Do something else (5%).

Is high inflation affecting savings behaviors?

While interest rates can motivate by dangling potential gains in front of savers, they can also motivate through fear of losing purchasing power. There are many ways economists track inflation, but they are all following the same trajectory these days: up, up and away. One inflation gauge, the Consumer Price Index, which is calculated by the U.S. Bureau of Labor Statistics, leaped 8.5% in March.

This rise has changed the savings habits of about 7 in 10 savers (71%). The percentage of people making changes was similar across:

• Education levels (73% of those with high school or less, 75% of those with some college and 68% of college graduates or higher).

• Home ownership (71% of homeowners and 73% of renters).

• Marital status (68% of married and 75% of not married).

The changes range from dipping into savings to cover increased costs to using financial products linked to higher potential returns.

People across all income ranges reported dipping into their savings to help cover rising prices for regular expenses:

• 23% of those with an annual household income of less than $50,000.

• 33% of those with an annual household income between $50,000 and $74,999.

• 22% of those with an annual household income between $75,000 and $99,999.

• 30% of those with an annual household income of $100,000 or more.

Perhaps counterintuitively, employed savers are more likely to have had to dip into savings to cover rising expenses (32%) than those who aren’t employed (18%).

Savers who are parents of children under 18 are nearly twice as likely to have had to dip into savings than savers who are not parents of children under 18 (38% and 20%, respectively).

Are savings accounts worth it?

High inflation and low interest rates can make your savings account balance seem like a sand castle, slowly melting away as waves lap against its walls. However, the core function of this old-school financial account hasn’t eroded, and it might even be more important during volatile economic environments like this one.

“A savings account is a vital part of every consumer’s financial toolbox,” Bessette says. “It’s a place to keep your money where it will be safe and accessible and where ideally it will earn some interest with no fees. According to our study, more than 20% of people in every income group have needed to use their savings to help cover the cost of increased expenses, so it’s particularly important to have cash in savings during periods of inflation. Consumers should try to research the best interest rates on a regular basis to make sure they’re getting the best return on their money.”

This story has been updated to clarify the range for the savings account balances in the U.S.