Women, on average, have less saved than men. According to the latest stats, women have an average of $54,000 saved, compared to $62,000 for men. And a new survey suggests one overlooked habit may be widening that gap.
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A recent Vanguard survey found that women are less likely than men to use a high-yielding savings option (26% versus 14%). In addition, more women reported not completely understanding how inflation impacts savings rates (66% versus 58%).
In this “Financially Savvy Female” column, we’re chatting with Sonia Fraher, head of cash and savings at Vanguard, about why women are underutilizing high-yield savings accounts, how a lack of understanding about savings rates creates missed opportunities and how women can create a savings strategy that works.
Why are women less likely to use high-yield savings accounts?
While our research shows women are more likely to see themselves as “savers” than “investors,” the gender difference when it comes to using high-yield savings options could be caused by a misunderstanding of the product and its functionality. Additionally, many women may not consider using high-yield savings options if they are offered by an investment firm because they do not see themselves as “investors.”
There have also been studies that show women have lower confidence in their financial literacy than men, which can make a high-yield savings option feel overwhelming, since selecting the proper vehicle often requires comparison across rates and financial providers.
However, for both men and women, there are two major behavioral factors that can contribute to their not leveraging a high-yield savings vehicle — habit and inertia. Consumers are comfortable with the traditional savings account they have always used and don’t realize they may need to make a change to ensure they are earning the returns they deserve on their savings.
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How does inflation quietly erode savings?
Many people do not understand how inflation impacts their savings; however, it’s important that the savings vehicle you use earns an annual percentage yield (APY) greater than the rate of inflation. Otherwise, your savings are actually losing value.
If you do not recognize this impact, you may not pursue high-yield savings options and instead, feel content sitting in a traditional bank savings account — which currently offers an average savings rate of 0.39% — without realizing this decision is causing your hard-earned savings to lose value.
