AAII Survey: Many Retail Investors Missing Out on Higher Banking Interest Online

Investors have faced near-record-low interest rates for nearly a decade. As a result, many have looked to other sources of higher interest rates. Yet is seems many are leaving money on the table.

Without the overhead expenses that come with operating a brick-and-mortar branch, digital banks can pay more interest. Today’s best online savings accounts pay more than 2% annual percentage yield (APY). By opening one of these accounts, the average American could earn up to $200 more in a year, according to Bankrate.com.

AAII Weekly Survey Question

To see if our readers are taking advantage of the higher interest rates online banks are paying, last week’s member question asked:

In the past 24 months, have you moved any of your cash to an online bank that pays higher yields on savings and money market accounts?

Here are the results:

In all, 1,490 readers participated.

By more than a two-to-one margin, our readers have not sought out higher interest rates offered by online banks (70% to 30%).

Weekly Special Question

Online banks have become more reputable and secure over the years, yet there is a hesitation among many consumers to use them to take advantage of the higher yields they tend to offer. To better understand this hesitation, last week’s special question asked:

What reason(s) do you have for not moving your cash to an online bank to earn higher yields?

In all, we received 300 responses.

The biggest reason cited by our readers as to why they don’t use an online bank to earn higher yields is because they don’t park their cash to earn interest, they invest it in the market instead (17.3%).

Another 12.3% say they are satisfied with the yields they earn from their brick-and-mortar banks.

A bit more than 10% of those answering (10.3%) say they have privacy or security concerns with online banks.

Other reasons our readers cited for not opting for an online bank to earn higher yields include:

• Too much hassle to switch banks
• Not enough cash to warrant the switch
• The belief that cash is not readily accessible
• Preference for local banks

Here is a sampling of the responses from our readers as to why they do not use an online bank to earn higher yields on their cash:

• “Lack of privacy.”
• “Not being able to communicate with a human face to face.”
• “They don’t pay enough more to make it worth my time to investigate them and open an account.”
• “Never realized that significant higher yields are available at online banks.”
• “Don’t fully trust the online environment or the businesses that operate there exclusively or essentially so.”
• “Banks employ the hostage strategy for retaining customers. After arranging auto deposit, electronic bill pay and auto payment for utilities, etc., it’s way too much trouble to switch.”
• “The yield differences are not great enough to be worth the effort.”

Everybody has an opinion! Why not give us yours? Participate in our weekly member poll, updated every Monday, and see the results online at www.aaii.com/memberquestion.