Despite improvement in the economy, more than a fourth of Americans have no emergency savings. And those who do manage to sock away some money in basic savings accounts get abysmal interest on their funds and sometimes have to pay excessive fees.

Half of Americans have less than three months of expenses saved up, and just a quarter have six months saved, which is the typical recommendation for emergency financial reserves, according to a report from the financial Web site Bankrate.com. The survey by Princeton Survey Research Associates International queried 1,004 adults from June 6 to 9 using landlines and cellphones. The margin of sampling error is plus or minus 4 percentage points.

Meanwhile, in a separate report, the Consumer Federation of America finds that statement or passbook savings accounts, the main place where lower- and moderate-income consumers put their savings to cover unexpected expenses like car repairs or dental bills, are very stingy with their interest rates and sometimes hit customers with extra fees. The accounts are used by about three-fifths of households nationally, the report found.

The federation’s report is based on an analysis of information about traditional savings accounts from the Federal Reserve Board’s 2010 Survey of Consumer Finances, and research on the Web sites of 150 banks, including the 50 largest as measured by the number of branches, as well as the 10 largest credit unions. The Federal Reserve data was analyzed for the federation by Catherine Montalto, a family economics professor at Ohio State University.

The federation’s report found that 17 percent of banks reviewed paid just 0.01 percent interest or less, or no more than 10 cents annually, on a $1,000 balance. Just 4 percent of the banks pay more than 0.25 percent on basic savings accounts. Interest rates on such accounts, in short, are “ridiculously low,” said Stephen Brobeck, the federation’s executive director, during a telephone briefing.

What’s more, the accounts may hit customers with significant fees that wipe out even the negligible interest they earn. For instance, in a sample of about two dozen banks, some banks charge fees from $1 to $12 if the account is inactive for as little as six months. While most banks don’t charge the fees unless the balance drops below a minimum balance (sometimes as low as $50), one online bank charges a $10 fee after six months of inactivity, regardless of the balance.

The inactivity fees are especially burdensome for savers who have built their account to a certain level as an emergency cushion and then just let it sit until needed, said Mr. Brobeck. “A consumer who wants to park funds but doesn’t make additional deposits and doesn’t have any emergencies could get whacked with these fees,” he said.

Some banks also penalize customers for excessive withdrawals. Federal regulations limit withdrawals from a savings account to six per month. But a significant number of banks — half of the large banks in the study — limit withdrawals to three a month and charge fees for each withdrawal over the limit. The fees vary widely, from 50 cents to $15 at large and medium banks and 50 cents to $10 at small banks.

The Bankrate report found that while the savings numbers are slightly better than before the recession, when just 39 percent had three months of expenses in the bank, they are still troubling, said Greg McBride, senior financial analyst at Bankrate.

The main culprit appears to be stagnating wages, he said; people have shed debt since the recession, but they still don’t have much excess cash.

It’s true that interest rates don’t offer much incentive to save, but Mr. McBride said an emergency fund was not meant to earn big investment returns. Rather, it’s just what it should be: a safe stash of cash for unexpected expenses.

The best way to build an emergency fund, he suggested, is to arrange for automatic transfers from a checking account into a savings account.

By arranging for automatic transfers, most savings accounts waive monthly service fees, Mr. Brobeck of the consumer federation said.

Do you have an emergency fund? Is it kept in a typical savings account?

A version of this article appeared in print on 06/29/2013, on page B4 of the NewYork edition with the headline: Slim Savings,
Earning Little.

Article source: http://bucks.blogs.nytimes.com/2013/06/25/why-its-hard-to-build-emergency-savings/?partner=rss&emc=rss