The word savings is defined as any income that is not spent, and the preferred vehicle is a “savings account,” which is an interest-bearing deposit account held at a bank or other financial institutions” [1]. These interest-bearing accounts allow individuals to pool their extra income into a singular account, which serves as a vehicle to cover future costs. When discussing topics in financial planning or literacy, the act of saving and a savings account is consistently referred to as a focal point to achieve and maintain stability. Sustenance of such action is necessary regardless of if it’s for retirement or an emergency fund since it allows for finances to be included in our act of planning. Many Federal Deposit Insurance Corporation (FDIC) insured entities, such as banks and credit unions, offer savings accounts to their clients. As of September 28, 2020, the average national rate on savings accounts for the $2,500 product tier was 0.05% [2]. For example, an initial contribution of $2,500 would generate an interest of $1.25 by the end of the year in a savings account according to the average national rate. That would be a horrible return rate compared to a 10 Year Treasury Note at 0.68%, a 30 Year Treasury Note at 1.45% (as of October 1, 2020) [3], or an average historical return of 10% and 5-6% return from stock and government bonds since 1926, respectively [4]. An argument presented is that an average individual who has little knowledge of the market would feel restricted if all they can do is pool money in a savings account. Other than liquidity, a savings account is a relic whose purpose no longer fits the current model.

To understand the savings account history, we are travel back to the early 1800s to Dumfries, Scotland. Here we are introduced to Reverend Henry Duncan, the ‘Father of Savings Bank,’ and an individual indoctrinated into the National Records of Scotland Hall of Fame [5]. Rev. Duncan sought to democratize the act of saving through constructing an institution that was accessible to all low net worth individuals. Until the early 1800s, the medium of savings to earn interest was restricted to private clubs and high net worth individuals. A mostly agricultural society meant an uncertainty of income, was coupled with seasonal employment. This compounded to both an urgency and a challenge answered by Rev. Duncan. A savings bank, such as the one recommended by Rev. Duncan, would provide a suitable financial cushion and build a positive communal practice. Rev. Duncan’s spiritual faith played a significant role in the formation of such a bank.

As mentioned, the high price of entry restricted participation. Established banks of the time needed £10 to open an account, whereas at Rev. Duncan’s bank, sixpence was enough, and members received 4-5% interest [6]. Low cost of entry allowed for all kinds of individuals to participate and reap the benefit. The concept gained traction, and soon savings banks migrated all across the United Kingdom and other nations. As documented by Emerson Willard Keyes in, A History of Savings Banks in the United States: From their inception in 1816 down o 1874, Massachusetts holds the distinction to give legislative sanction to the Institution of Savings Banks [7]. Below is an excerpt from his document,

The first public announcement of the purpose, so far as I can learn, was in The Christian Disciple, for December 1816, a small religious monthly, published in Boston. It is in the following words: “Savings Banks.”. “Under this novel title, it is proposed to form an institution in Boston, for the security and improvement of the savings of persons in humble life, until required by their wants and desires… Similar institutions exist in England and Scotland; in the former place under the appellation of ‘Provident Institutions for Savings,’ and in the latter of ‘Savings Banks.’ [8]

The ‘Provident Institution for Savings,’ in the town of Boston, was approved on December 13, 1816, serving a population of 35,000-36,000 Bostonians [9]. An assertion presented is that the sentiments attached to the act of savings, or participating in instruments that encourage saving has not changed. The belief that is holding a savings account to ensure “security and improvement of the savings of persons in humble life until required by their wants and desires” is still applied with the current savings account. We hold a savings account with the belief that it would be financially beneficial and increase security. Compare the 4-5% interest offered by Rev. Duncan’s Savings Bank to the 0.05% current national average, the modern standard for a savings account is gross underrepresentation of the efforts enabled by Rev. Duncan. While being one of the safest options, merely holding a savings account in 2020 is not an option to earn a strong interest in the pursuit of security and welfare.

Across the board, the big commercial banks offer an interest rate less to the national average rate. J.P Morgan Chase, Bank of America, Wells Fargo, and T.D Bank offer a 0.01% interest rate, whereas Citigroup offers 0.04%. A rise in financial technology has cultivated numerous online banks that provide a better rate than commercial brick and mortar vendors. Salem Five, American Express National Bank, and Ally Bank, offer a 1.00% interest, whereas Vio Bank and CIBC Bank USA offer 1.04% and 1.05%, respectively. Online options tend to present with better interest rates when compared to the big banks. This would be a very acceptable rate to a generation of individuals who have experienced one financial shock after the other. As a society, we spent an insurmountable amount of time and resources to achieve stability and security. Michelle Cissi, a Policy Analyst for the Federal Reserve Bank of St. Louis registers, “total deposits grew from $5.5 trillion to $10.10 trillion over the period 2004 to 2014”. She continues, “banks with large networks saw a much larger increase in deposits than all other banks (56.9% to 25.5%)” [10].  It is inferred that the majority of the money intended for savings is directed to savings instruments provided by the traditional brick and mortar commercial banks referred above. This reliance on savings instruments, while necessary, needs to serve the user better.

A product of the 2008 Financial Crisis was bigger banks. Since 1985, there has been an almost linear deduction of commercial banks, resulting in a lack of a large selection of options and low-interest rates for the user. Data from the St. Louis Federal Reserve shows a steady decline in the number of commercial banks in the United States. Small banks have seen a larger decline in numbers when compared to their larger counterparts.

Instead of offering an attractive interest rate in a savings account, a referral to original intentions of the savings account’s history and principles must be adhered to. Besides building a hub for emergency savings, since liquidity is prime in an emergency, a savings account serves very few purposes.