CONSUMERS : Making Savers Out of Spendthrifts : Finances: Banks design new, low-minimum savings plans for people who lack the willpower to put away money.
Like most Americans, Michael Polk is not a great saver. In the 2 1/2 years he has lived in Los Angeles, he has had only a checking account. But now, he has found a new way to force himself to put money away.
Polk, a 31-year-old actor and property manager, just signed up for California Federal Bank’s Automatic Saving and Planning Account, a custom plan that deducts predetermined sums from his checking account and deposits them in a four-month certificate of deposit earning 8.17% interest.
Consumers can open the accounts with a minimum of $200 and order monthly transfers of $25 or more from their checking account to a money market account; a four-month, fixed-rate CD, or a one-year, variable-rate CD. The plan allows them to increase the amount of the transfer and to miss two monthly payments per year.
“I’m not very good at keeping track of money,” Polk said. “But I need to have a little cushion. This way, I put the money in my checking account, they take out $50 every two weeks . . . and I don’t have to think about it. This kind of plan is good for people who don’t work for a big corporation with a credit union. . . . They take the money out and you don’t see it.”
With its ASAP program, California Federal has joined the growing number of banks nationwide developing new ways for consumers to save, said Virginia Stafford of the American Bankers Assn. in Washington.
“More and more banks are offering variations on savings accounts, alternative savings with high yield,” she said. “We’ve seen more creativity these days on the part of banks in designing accounts that help promote savings. The automatic transfers are an out-of-sight, out-of-mind approach. These more creative accounts help provide consumers with a little extra influence to save.”
Americans, Stafford said, are among the worst savers in the world. The U.S. household savings rate dropped from 5% in 1980 to 2 1/2% in 1987 but rose again in late 1989 to 5.8%.
But that’s minuscule compared to other nations: Japan’s rate, for example, is 20%; Germany’s is 13.9%; France’s is 13%, and Canada’s is 11%.
“There’s been an overall concern about the nation’s low savings rate,” because it generally means that Americans are taking on more debt and have less money to invest in their future, Stafford said. “The banks that do this (help consumers save) should be commended for encouraging the consumer to take a long-term approach.”
In developing its savings program, CalFed spent almost a year consulting with consumers. “Our (numerous) focus groups of 10 people, ages 30 to 49, said they needed to save, but they don’t have ways . . . “ said Laura S. Kalb, CalFed vice president and director of deposit product management. “They wanted a low minimum and wanted to have a skip available in the program, in case there were times when they needed their money.”
In the three weeks since it started the program, CalFed has opened 8,000 ASAP accounts, a number CalFed President William L. Callender calls “phenomenal.” “It’s proof that a program such as this was sorely needed,” he said.
There are other familiar ways to save. Some silly people keep their rainy-day funds in cookie jars or under mattresses (not recommended). Others stash cash through payroll-deduction plans that invest in U.S. savings bonds. Or they set up their own plan, putting their savings in bonds and U.S. Treasury bills. Many frugal folk also use work-related savings and retirement programs, such as 401(k)s.
And for 60.4 million Americans--7 million in California--there are, of course, workplace credit unions.
Credit unions offer various savings options, including traditional savings accounts, variable-rate CDs and Christmas club plans. “Different credit unions have different options, depending on how they’re set up,” said Tina Lozano of the California Credit Union League in Pomona.
But are banks now simply imitating credit unions with their new savings programs?
“Banks,” said Jerry Karbon of the Madison, Wis.-based Credit Union National Assn., “are becoming somewhat envious of what credit unions have been doing and are trying to offer similar services.”
Most banks and savings institutions require a minimum of $500 or $1,000 to open a CD, but Kalb of CalFed said the bank decided to lower its minimum for its new savings account to $200 “to help more people save. “The people we’re trying to attract don’t have $1,000, or have it tied up in other things. They can be either poor people or upscale.”
CalFed studies showed that both the poor and the wealthy maintained savings “well below the minimums required by various financial institutions to open investment accounts--including CDs, mutual funds and money-market accounts.”
More than half of the high-income workers--in the $40,000 to $130,000 bracket--ages 35 to 49 said that they were unable to save.
In fact, few Americans, regardless of age, have put away the minimum that banking and credit experts recommend: the equivalent of three months’ salary.
And few adhere to the yearly savings plan recommended by experts for various age groups: Save or invest 5% of pretax income from 30 to 40; from 40 to 45, increase that amount by 1% a year, after 45, save 10% yearly.
“If you’re in your 50s, you should eliminate your debt and put away 20% of your salary,” advised Michael Sullivan, a banking consultant from Charlotte, N.C.
