WASHINGTON -- Americans are losing tens of billions of dollars in interest each year by keeping their money in traditional bank savings accounts instead of certificates of deposit and credit union accounts, the Consumer Federation and a credit union group say.
Switching to certificates of deposit and credit unions "is really a no-brainer. People ought to be doing it," Stephen Brobeck, executive director of the Consumer Federation of America, told a news conference Tuesday.
Americans have about $1.5 trillion in traditional savings accounts and money-market deposit accounts, which pay on average less than 2 percent annually, Brobeck said. Rates on certificates of deposit -- also federally insured -- usually exceed 4 percent.
In addition, credit unions pay on average more than 1 percentage point above what banks offer on the same kind of accounts, said Brobeck and Dan Mica, president and chief executive officer of the Credit Union National Association. Their figures were based on data compiled by Bank Rate Monitor, an industry trade publication.
Switching to a CD or a credit union is "an opportunity for consumers to save an awful lot of money" quickly and easily, Mica said.
Penalties for early withdrawal from CDs rarely reduce the yield to consumers below that of traditional savings accounts, said Brobeck.
Nancy Ness Judy of the American Bankers Association responded to their statements by saying banks offer consumers a wider range of financial products, such as brokerage and trust services.
"Savings accounts are not the whole picture," said Ms. Judy, the group's consumer affairs manager.
For example, she said, banks generally offer lower rates than credit unions on home mortgage loans. Rates on 30-year, fixed-rate home mortgages currently average 6.80 percent at banks and 6.86 percent at credit unions, Bank Rate Monitor says. At savings and loans, the average is 6.74 percent. Many credit unions lack the capital to make mortgage loans directly and must go through brokers.
In addition, Ms. Judy said, about 4,000 of the nation's 11,300 credit unions do not offer checking accounts.
Credit unions, with some 77 million members nationwide, often can offer lower rates on loans and higher interest on savings than banks because they are owned cooperatively and pay no dividends to shareholders. They also are exempt from federal taxes, an exemption banks have bitterly contested. The bankers association last month filed suit to block the implementation of a 1998 law letting credit unions include more than one occupational group in their membership as long as each group doesn't exceed 3,000 people.