Why don’t many women use high-yield accounts?

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Women, on average, save less than men. According to the latest data, women have saved an average of $54,000, while men have saved $62,000. And a new survey shows that an overlooked habit is widening that gap.

a fresh vanguard The survey found that women are less likely than men to use high-yield savings options (26% vs. 14%). Additionally, more women reported that they did not fully understand how inflation affects savings rates (66% vs. 58%).

In this “Financially Savvy Women” column, we’re chatting with Sonia Fraher, head of cash and savings at Vanguard, about why women are underusing high-yield savings accounts, how a lack of understanding about savings rates leads to 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 that women are more likely to see themselves as “savers” than “investors,” the gender gap when it comes to using high-yield savings options may be due to a misunderstanding of the product and its functionality. Additionally, many women if offered high-yield savings options by an investment firm may not consider using them because they do not see themselves as “investors.”

There have also been studies that show women are less confident in their financial literacy than men, which can make the high-yield savings option seem overwhelming, as selecting the appropriate vehicle often requires comparisons between rates and financial providers.

However, for both men and women, there are two key behavioral factors that can contribute to not taking advantage of a high-yield savings vehicle – habit and inertia. Consumers are comfortable with the traditional savings account they have always used and may not realize that they may need to make changes to ensure they are earning a fair return on their savings.

How does inflation silently erode savings?

Many people do not understand how inflation affects their savings; However, it is important that the savings vehicle you use earns an annual percentage yield (APY) that exceeds the rate of inflation. Otherwise, your savings are actually losing value.

If you don’t recognize this effect, 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 feeling that this decision is robbing you of the value of your hard-earned savings.

As a way to combat this, you should consider checking your account’s APY to make sure you’re earning a reasonable return on your savings – and if not, consider making a change.

What are some simple savings strategies women can start using today?

Although creating or changing your savings strategy can seem overwhelming, these three tips can serve as a great starting point to help women develop a savings strategy that works for their lifestyle:

1. start small: Even contributing a small amount can make a big difference in the long run. Think about those expenses or subscriptions you can do without – perhaps a streaming (service) you’ve forgotten about – and consider (redirecting) those funds, even if it’s just $10 to $20 per month, to a high-yield savings vehicle. This can help you build a savings buffer that will keep growing due to the power of compounding, without making significant lifestyle changes.
2. Automate when possible: Another key element of saving is continuous contribution. Automating a small portion of your paycheck into a high-yield savings vehicle and making it a habit can help you achieve your savings goals through the financial benefits of compound interest. Automation also takes the mental burden off you, so you don’t have to remember to make savings contributions.
3. Review the Annual Percentage Yield (APY) on where you are saving: It’s important to understand how much return you’re earning on your savings, and the APY is a great way to compare between savings vehicles. The higher the APY, the higher the rate of return. Take a close look at your current APY to see where you stand. If you’re earning less than 2.5%, it’s probably time to reconsider where you’re saving, because your savings are actually losing value due to not keeping up with the pace of inflation.