- The Washington Times - Wednesday, October 18, 2000

Americans could earn an additional $30 billion to $50 billion each year by moving the $1 trillion they have in low-yield savings accounts into such things as Treasury bonds and certificates of deposit, the executive director of the Consumer Federation of America said yesterday.

Consumers are losing out because of their lack of knowledge about products' interest rates or their desire for convenience and liquidity, concluded a report commissioned by the federation and Providian Financial Corp.

The organizations also commissioned an analysis of Federal Reserve data, which concluded that more than 60 percent of Americans have low-yield savings accounts.

"There are so many creative ways you can increase the yield without risk to the principal," said Shailesh Mehta, chairman and chief executive officer of Providian, at a news conference.

Consumer Federation Executive Director Stephen Brobeck acknowledged that many Americans more than half, according to the Federal Reserve invest in stocks, either in addition to or instead of saving accounts.

But he noted that older people in particular shy away from the risk associated with the stock market. And people over 65 tend to put more money into savings accounts than other age groups. For those individuals, moving to a higher-yield product would be especially beneficial.

Mr. Brobeck also said that even if someone invests in the stock market, it's a good idea to diversify, with investments in other financial instruments as well.

Savings accounts and money-market deposit accounts typically average 1 percent to 2 percent interest rates. Consumers can gain about 5 percent interest on certificates of deposit and 5 percent to 7 percent on savings bonds, depending on their maturity. Both can be purchased at banks or credit unions, and neither can be immediately redeemed.

Mr. Brobeck trumpeted a Series I bond, which can be cashed in after six months, and has a three-month interest penalty when redeemed before the five-year mark.

Despite those features, "nearly half [of study respondents] do not consider U.S. bonds to be an attractive savings vehicle," Mr. Brobeck said.

In addition to CDs and bonds, Mr. Mehta said alternative savings accounts can earn better yields for consumers. The accounts differ from bank to bank, and can include such features as low minimums and higher interest rates. Mr. Mehta said his bank is attempting to develop such a product.

Despite the popularity of stock market investing, Mr. Brobeck said the time is ripe for a campaign about savings products because of recent market losses.

The campaign also comes as the personal savings rate savings as a percentage of after-tax income dipped to its lowest levels ever this summer. But economists said the rate measures only the amount of money being put aside each month, and is not as alarming as it would seem.

It doesn't represent a calculation of personal wealth, which would account for gains households have realized on their savings in previous months from such things as rising stock market values and higher real estate values. Thus, the savings rate reflects money socked into a 401(k), but it doesn't capture an increase or decrease in its value.

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