Feature Article: 

Building Assets, Building Relationships: 

Bank Strategies for Encouraging 

Lower-Income Households to Save 

Introduction 

Personal saving enables individual households to withstand unforeseen expenses and income disruptions, such 

as job loss, health emergencies, or major home and 

automobile repairs. Saving also helps households fund 

large expenditures, including buying a home, starting a 

small business, or paying for college. In addition, saving 

helps ensure that households will have sufficient assets 

for retirement. Further, a cushion of savings provides 

households with many intangible benefits. For example, 

studies have shown that people who save feel that they 

have a “stake” in society and have better relationships 

with family and neighbors, increased community 

involvement, and enhanced personal respectability.1 

On a macro level, personal saving is a major component 

of national saving; a country with robust saving generally has more available capital to fund investment and 

support economic growth. 

In very simple terms, individuals can save by putting 

funds in a deposit account at a bank, credit union, or 

brokerage firm. However, another way to save is to build 

financial assets by purchasing a home, insurance policy, 

stocks and bonds, or deferred retirement plans, among 

other things. Access to credit is a critical component of 

asset building, in that large financial assets are often 

accumulated by borrowing, which can magnify returns. 

In addition, households with access to reasonably priced 

credit can borrow money to fund purchases or meet 

emergency needs without tapping savings. Except in 

the case of a windfall, such as an inheritance, it is very 

difficult to build wealth without access to credit. 

Not surprisingly, low- and moderate-income (LMI) 

households have the most difficulty saving. Conventional wisdom suggests that banks do not view LMI 

households as potential profitable customers because 

these households have less income and fewer assets.2 

1 Margaret Lombe and Michael Sherraden, 2007, Effects of Participating in an Asset Building Intervention on Social Inclusion, Working 

Paper Number 07-02, George Warren Brown School of Social Work, 

Washington University in St. Louis. 

2 In this article, the term “bank” refers to banks and savings associations insured by the Federal Deposit Insurance Corporation (FDIC). 

Nevertheless, banks already have an account relationship or other connection with a large number of these 

households, and the majority of LMI customers have 

indicated a desire to expand these relationships. Since 

the bank has realized the fixed costs of acquiring these 

customers, the challenge is to increase the profitability 

of the relationships while also providing LMI households with opportunities to build assets. 

This article explains the obstacles LMI households face 

in asset building, examines the incentives banks have 

for encouraging these households to save, and describes 

some strategies banks have used to build profitable relationships that also benefit LMI consumers. 

Low- and Moderate-Income Households Lag 

in Asset Building 

The U.S. personal saving rate has been declining since 

the early 1980s. As recently as the early 1990s, quarterly 

saving rates were often greater than 7 percent. Since 

2005, however, saving rates have hovered between 

zero and 1 percent, even falling briefly into negative 

territory. The most recent saving rate, 0.0 percent as 

of fourth quarter 2007, is among the lowest since the 

government began collecting the data in 1959 (see 

Chart 1). 

Chart 1 

Source: Bureau of Economic Analysis (Haver Analytics) 

-2 

0 

2 

4 

6 

8 

10 

12 

14 

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 

Personal saving as a percentage of disposable income 

The Personal Saving Rate Has Trended 

Steadily Downward Since the 1980s 

4Q07

0.0% 

FDIC QUARTERLY 23 2008, VOLUME 2, NO. 1 
Chart 2 Chart 3 

*Household net worth is the difference between household assets and household liabilities. 

Source: Federal Reserve Flow of Funds 

Nominal Household Net Worth* 

Total Household Net Worth Has Climbed 

Almost Continuously, Except for a Brief Time 

in the Early 2000s 

60,000 

50,000 

40,000 

30,000 

20,000 

10,000 

0 

$ Billions 

1980 1985 1990 1995 2000 2005 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 

Percentage of households with 

retirement accounts 

Percentage of households with 

primary residence 

It Is Less Common for Lower-Income Households to 

Own Their Homes or Have Retirement Savings 

Percentage of households with asset holdings 

Percentile of Income 

Source: Federal Reserve 2004 Survey of Consumer Finances 

Lowest Second lowest Middle Second highest Highest

 quintile quintile quintile quintile quintile 

However, the saving rate is an imperfect measure of 

household wealth accumulation. Some observers have 

argued that the U.S. saving rate may be understated, 

primarily because several important asset classes are not 

included in the calculation (see Text Box on page 31). In 

addition, a breakdown of the U.S. saving rate by income 

level is not regularly published. This lack of granularity 

in the calculation masks the fact that wealthier households drive the overall U.S. saving rate because they 

earn and spend more and hold higher levels of assets. 

To gain a better understanding of the dynamics of 

personal saving, it is useful to review alternative measures of asset-building progress, namely the trends in and 

distributions of total household wealth and net worth. 

According to the Federal Reserve, overall household net 

worth was $57.7 trillion by fourth quarter 2007, up 3.4 

percent on a year-over-year basis but down about 0.9 

percent from the previous quarter. Net worth has grown 

nearly every quarter since 1953, with the only notable 

downturn occurring after the stock market declines of 

the early 2000s (see Chart 2). The most recent dip in 

household net worth was the first since 2002 and was 

caused by erosion in home equity and stock values. 

Recent increases in overall household net worth 

have been driven in part by growth in the rate of 

homeownership—from 65 percent in 1995 to about 

68 percent in 2007—as well as an increase in home 

values.3 In addition, equity holdings, including the 

increased participation in and value of retirement 

plans, have contributed to higher overall household 

wealth. Higher-income households drive overall house3 Homeownership rates are calculated by the U.S. Census Bureau. 

hold wealth figures because asset holdings are heavily 

concentrated in upper-income bands. For example, 

homeownership rates for the top quintile of households 

exceed 90 percent, and retirement account participation is close to 85 percent. Conversely, about 40 percent of households in the lowest quintile own their 

homes, and only about 10 percent participate in retirement plans (see Chart 3). 

Between 1989 and 2004, the median net worth for 

households increased in all but the second lowest 

income quintile, although higher-income households 

have far greater wealth in absolute terms (see Table 1). 

Moreover, while the median net worth of households 

in the lowest income quintile is about $7,000, almost 

20 percent of these households have negative net 

worth, compared with fewer than 1 percent of households in the highest quintile (see Chart 4). 

Table 1 

Between 1989 and 2004, Median Net Worth 

Grew for Almost All Income Groups, But HighIncome Households Have Far Greater Wealth 

Median Net Worth 

Income Quintile 1989 2004 

Lowest (<$18,900) 

Second lowest ($18,900–$33,899) 

Middle ($33,900–$53,599) 

Second highest ($53,600–$89,299) 

Highest (>$89,299) 

$2,756 

$36,358 

$60,241 

$99,986 

$309,193 

$7,420 

$33,800 

$73,400 

$159,800 

$503,700 

Note: Figures are in 2004 dollars. 

Source: Federal Reserve 2004 Survey of Consumer Finances 

FDIC QUARTERLY 24 2008, VOLUME 2, NO. 1 
Building Assets, Building Relationships 

Chart 4 

One in Five Households in the Lowest Income Quintiles 

Has Liabilities That Exceed Assets, 

Resulting in Negative Net Worth 

Percentage of households reporting negative net worth 

25 

20 

15 

10 

5 

0 

Lowest Second lowest Middle Second highest Highest

 quintile quintile quintile quintile quintile 

Percentile of Income

Source: Federal Reserve 2004 Survey of Consumer Finances 

Barriers to Asset Building for Low- and 

Moderate-Income Households 

There is a seemingly straightforward reason why lowerincome households save less—basic necessities such as 

food, clothing, and shelter consume most, if not all or 

more, of their available income. Indeed, the median 

balance in checking, savings, and money market 

accounts for households in the lowest income quintile 

was only $600.4 Most of these funds would likely be 

used for day-to-day expenses, with little left for building 

emergency funds or long-term planning. In addition, 

other, perhaps less obvious, barriers to saving for lowerincome households remain. 

The Wage Gap 

A growing wage gap has diminished the already limited 

ability of LMI households to save. A recent study on 

income inequality, using data from the U.S. Census 

Bureau’s Current Population Survey, found that the average income of the lowest quintile of households grew by 

only $2,660 (inflation adjusted) during a two-decade 

period from the early 1980s through the early 2000s. In 

contrast, average income of the highest-income households, or the top 20 percent, increased by $45,100 during 

this period.5 By 2005, the wealthiest 1 percent of Americans earned 21.2 percent of all income earned, while the 

bottom 50 percent earned 12.8 percent of all income.6 

4 Federal Reserve Survey of Consumer Finances, 2004. 5 Jared Bernstein, Elizabeth McNichol, and Karen Lyons, January 

2006, Pulling Apart: A State-by-State Analysis of Income Trends, 12, 

Washington, DC: Center on Budget and Policy Priorities and the 

Economic Policy Institution. 

6 “Income-Inequality Gap Widens,” Wall Street Journal, October 12, 

2007. 

Effect of Public Policies on Saving 

Many of the major public policies directed at asset 

building apply mainly to middle- and upper-income 

households through tax subsidies that reward saving. 

Examples of these subsidies include tax-advantaged 

401(k) retirement accounts and Section 529 education 

accounts, as well as deductions for mortgage interest 

and state and local taxes on owner-occupied homes. 

Since the subsidies are proportional to the household’s 

tax bracket, poorer households that pay few or no taxes 

receive little or no benefit. 

For example, a government study estimates that more 

than 55 percent of the dollar value of the mortgage 

interest deduction accrues to households with incomes 

above $100,000, while 46 percent of homeowners who 

pay mortgage interest receive no deduction benefit.7 

Even the Credit for Qualified Retirement Savings 

Contribution, which was designed to encourage saving 

among LMI households, is limited to those with positive tax liabilities.8 

In addition, some public policies can have unintended 

consequences for LMI households. Short-term poverty 

alleviation programs, such as the Temporary Assistance 

for Needy Families and food stamp programs, are sometimes “means-tested,” meaning that households may 

only participate subject to asset-holding limits. Consequently, participants risk having their benefits eliminated or reduced if they build assets. 

Limited Credit Alternatives 

Access to reasonably priced credit is another obstacle 

to wealth building for lower-income households. Often, 

LMI households do not qualify for, or are unaware of, 

mainstream credit products, and they may turn to 

alternative financial services (AFS) providers when 

unforeseen expenses arise. Although AFS providers, 

including payday lenders, pawnshops, and car title 

lenders, provide needed credit, it can be very costly. In 

some cases, use of their products may contribute to a continuous cycle of debt if borrowers rely on them too heavily. For example, payday lenders typically charge annual 

percentage rates (APRs) of about 391 percent or more for 

7 The President’s Advisory Panel on Federal Tax Reform, Simple, Fair, 

and Pro-Growth: Proposals to Fix America’s Tax System, November 

2005. Data are as of 2002. 

8 The Credit for Qualified Retirement Savings Contribution offers a tax 

credit for lower-income taxpayers who make contributions to existing 

retirement plans, such as employer-based 401(k) plans or Individual 

Retirement Accounts. For married, joint filer households, the maximum adjusted gross income to claim this credit is $52,000. 

FDIC QUARTERLY 25 2008, VOLUME 2, NO. 1 
small, very short-term, emergency loans. At these rates, 

the borrower will owe more in fees than the original 

cash advance if the loan is rolled over only a few times.9 

Some banks also provide costly credit products, such 

as credit cards with high rates or fees, for those with 

impaired or limited credit histories. In addition, a 

number of banks provide fee-based overdraft protection—sometimes referred to as “bounce protection”— 

which imposes a fee for each overdrawn item. Per-item 

fees for this protection can be $30 or more.10 Occasional use of fee-based bounce protection can help 

customers avoid overdrawing their accounts and incurring late fees on their bills. However, like payday loans, 

overuse of these programs can result in fees that exceed 

the amount of the overdrafts. 

Why Banks Should Encourage Asset Building among 

Low- and Moderate-Income Consumers 

On the surface, it may seem that banks have little 

financial incentive to build deposit relationships with 

LMI households. Although LMI deposit accounts can 

be used as a funding source, the profitability of these 

accounts is hampered by the costs of acquiring and 

servicing them and the limited ability of LMI 

consumers to build large account balances. 

Because of the competitive nature of banking, banks do 

not publicly release much information regarding the 

profitability of specific products or relationships. 

However, one study reports that upfront fees for developing, marketing, and opening low-cost accounts for 

unbanked federal benefit recipients are in the range of 

$27.60 to $38.60 per account.11 Yet the maximum fee 

banks may charge on these accounts is $3.00 per month. 

Another study provides some insight into transaction 

costs—$1.07 per teller window transaction, $0.27 per 

automated teller machine transaction, and $0.015 per 

9 Payday lenders typically charge $15 to $20 per $100 borrowed for two 

weeks; under a typical payday loan-fee scenario, $500 is borrowed. Fees 

are at least $75 for each two-week borrowing period, which translates 

into a 391 percent APR. At this price, it takes seven rollovers, or 14 

weeks, for a consumer to owe more in fees ($525) than the original loan. 

10 The average overdraft fee climbed 3 percent in 2007 to a record 

high of $28.23. See Greg McBride, “Bounced Check Fees Hit New 

High,” September 26, 2007, www.bankrate.com/brm/news/chk/ 

chkstudy/20070924_bounced_check_fee_a1.asp. 11 Michael Barr, Banking the Poor: Policies to Bring Low-Income 

Americans into the Financial Mainstream, Brookings Institution 

Research Brief, September 2004. These cost estimates assume that 

approximately 10,000 accounts are opened. 

online banking transaction—suggesting that these costs 

could outstrip the benefit to the bank of what would 

likely be low-balance deposit accounts.12 

In light of what would seem to be major financial barriers to pursuing deposit accounts with LMI households, 

it may be surprising to learn that banks are already 

serving, to some degree, large numbers of lower-income 

households. For example, while few banks target the 

very poorest households as customers, in a 2002 survey, 

banks reported that one-third to one-half of their 

customers earned between $10,000 and $49,900.13 

A more recent study of check-cashing customers by 

the Center for Financial Services Innovation (CFSI) 

showed that the majority of these individuals already 

have relationships with banks. Indeed, 60 percent of 

those surveyed have checking accounts, 45 percent have 

savings accounts, and 27 percent have loan balances.14 

Roughly 75 percent indicated that they used both check 

cashers and mainstream financial institutions (banks or 

credit unions) concurrently or at various times, compared 

with about 24 percent who use only check cashers.15 

Perhaps most interesting for banks, the survey also 

indicated that a large percentage of respondents (both 

those who already have bank accounts and those who 

rely exclusively on check cashers) wish to increase the 

number of financial products they have with mainstream financial institutions (see Chart 5). Even among 

consumers who exclusively use check cashers rather 

than banks, almost 60 percent said they were “very 

open” to having a relationship with a bank. This is 

consistent with previous findings that LMI individuals 

in general can and do save, and wish to increase their 

saving and asset-building activities.16 

12 Steven Davidson, "Reaching out with Technology: Connecting the 

Low-Income Population to the Financial Mainstream," Fannie Mae 

Foundation Building Blocks 3, no. 2 (Fall 2002). 13 American Bankers Association, American Bankers Association 

Retail Banking Survey Report, Washington, DC, 2003. 14 Jennifer Tescher, Edna Sawady, and Stephen Kutner, The Power 

of Experience in Understanding the Underbanked Market, Chicago: 

Center For Financial Services Innovation, July 2007. The study 

surveyed the check-cashing and banking habits of 760 people from 

24 urban markets earning between $15,000 and $50,000 a year. The 

average income was $31,000. To participate in the study, respondents 

had to have cashed a check at a traditional check-cashing store or 

other nonbank company in the past six months, and at least one of 

the checks cashed had to be a payroll or government check. 

15 Ibid. 

16 Ellen Seidman, Moez Hababou, and Jennifer Kramer, A Financial 

Services Survey of Low- and Moderate-Income Households, Chicago: 

Center for Financial Services Innovation, July 2005. 

FDIC QUARTERLY 26 2008, VOLUME 2, NO. 1 
Building Assets, Building Relationships 

Chart 5 

Many Underbanked Individuals Would Like to Increase 

the Number of Mainstream Financial Products They Own 

Percentage of respondents who indicate that they currently have

or want to have specified financial products 

100 

90 

80 

70 

60 

50 

40 

30 

20 

10 

0 Bank Retirement Bank Certificates Children’s Loans

 savings account checking of deposit college

 account account account 

Want in 2-5 years 

Want in 1 year 

Currently have 

Source: Jennifer Tescher, Edna Sawady, and Stephen Kutner, “The Power of Experience in 

Understanding the Underbanked Market,” Center for Financial Services Innovation, July 2007. 

There is no single explanation for why customers of 

check-cashing services, particularly those who already 

have relationships with banks, so regularly turn to 

alternatives to mainstream financial institutions. 

Some may not qualify for a checking account because 

they cannot meet minimum balances, or perhaps they 

have had difficulty managing an account in the past. 

Check-cashing customers in the CFSI study cited 

the price and convenience of check cashers, negative 

past experiences with banks, respectful treatment, 

and good-quality products and services as reasons for 

patronizing check cashers instead of banks.17 

From a bank perspective, the sheer size of the market 

presents a strong incentive to capture some of the 

transaction volume flowing through check-cashing 

outlets. According to the Financial Services Center of 

America (FiSCA), a national trade group representing 

5,000 financial service centers, check-cashing companies process 180 million checks annually at a face value 

of $55 billion.18 

One recent report indicated that LMI households pay 

more than $8 billion in fees to nonbank check cashers 

and short-term loan providers.19 This finding suggests 

significant possibilities for banks to develop successful 

long-term relationships with LMI consumers. For 

check-cashing customers who already have deposit 

accounts, the bank’s customer acquisition costs are 

17 Tescher et al., The Power of Experience. 18 Data are from 2006/2007, according to FiSCA’s website at 

www.fisca.org (accessed January 7, 2008). 19 Matt Fellowes and Mia Mabanta, Banking on Wealth: America’s New 

Retail Banking Infrastructure and Its Wealth-Building Potential, Brookings Metropolitan Policy Program, Washington, DC, January 2008. 

already “sunk,” so the challenge is to transition these 

customers into profitable relationships and products 

that also enable them to build assets. 

In addition to using deposit accounts as a strategy for 

gaining and strengthening business with LMI households, banks have a strong incentive to serve LMI 

consumers as part of their obligations under the 

Community Reinvestment Act (CRA). Banks that 

provide low-cost saving-related products or services 

that are responsive to the needs of the community, 

including LMI neighborhoods and individuals, may 

receive favorable consideration under the CRA.20 

More generally, banks recognize that helping to 

improve the financial well-being of individuals 

can result in a stronger, more stable local economy, 

thereby creating additional business opportunities for 

the institution over the long term. 

Bank Strategies That Promote Asset Building 

An increasing number of banks are beginning to 

view LMI households as a long-term business opportunity and are recognizing that asset-building 

programs can play an important part in engaging 

these consumers. While strategies vary, most banks 

realize that, like upper-income households, LMI 

families are not monolithic in terms of their needs, 

wants, financial awareness, and capabilities. To be 

successful, banks must determine the needs of their 

local market and tailor their product offerings accordingly.21 While many banks use multiple approaches 

and platforms, the following are some strategies that 

banks have used in developing asset-building 

programs for LMI consumers. 

20 For banks examined subject to large bank procedures, positive 

consideration may be available under the service test (12 CFR 

345.12(i) & 345.24) and potentially also the investment test (12 CFR 

345.12(t) and 345.23). Likewise, intermediate small banks may receive 

positive consideration (12 CFR 345.26 (c)). Small banks seeking an 

outstanding rating may also receive positive consideration for certain 

activities (Appendix A to 12 CFR 345 (d) (3) (ii) (B)). 

21 Several research initiatives are under way that may help banks 

understand, segment, and market products to unbanked and underbanked consumers, many of whom are also LMI households. For 

example, the FDIC is working with the U.S. Census Bureau to explore 

the feasibility of conducting a survey of U.S. households in 2009 to 

estimate the percentage of the population that is unbanked or underbanked. The FDIC is also surveying banks about their interactions 

with these consumers and conducting a case study to highlight 

innovative practices that banks have used to bring underserved 

consumers into the financial mainstream. 

FDIC QUARTERLY 27 2008, VOLUME 2, NO. 1 
Do No Harm. Banks that are successful in attracting 

and expanding relationships with LMI households 

appear to use a fairly straightforward strategy—they 

provide reasonably priced products and services. In 

other words, these banks have found that the best way 

to help customers save is by not overcharging them. 

Of course, most banks strive to ensure that all of their 

products and services are fairly priced. Nevertheless, 

high-cost bank products have been criticized for 

hampering peoples’ ability to build assets. 

One example is fee-based bounce protection (see page 

26), particularly when it is paired with “free” checking 

accounts that have no minimum balance requirement. 

According to one analyst, “They [banks] are able to 

make money on this once-unprofitable segment by 

imposing hefty fees for overdrawing. Customers rarely 

consider these fees when opening an account, and the 

low-balance segment has a much higher frequency of 

non-sufficient fund incidents than others.”22 “Free” 

checking tied to fee-based bounce protection can be a 

profitable approach in the short term. However, as 

another analyst pointed out, the high, and sometimes 

unexpected, fees “provoked customer dissatisfaction,” 

which strains, and often ends, customer relationships.23 

Many banks offer lower-priced alternatives to fee-based 

bounce protection, such as “account linking,” which, for 

a small fee, automatically transfers funds from savings 

accounts or credit cards to checking accounts in the 

case of overdrafts. Another popular alternative is an 

overdraft line of credit tied to a checking account. For 

example, Citibank, N.A. offers the Checking Plus overdraft line of credit to all qualified checking account 

customers for a maximum $5 annual fee and a variable 

APR currently at 19 percent in most states.24 Another 

product specifically targeted to LMI consumers, or those 

who have difficulty balancing accounts, is a low-fee 

debit or stored-value card that helps prevent overdrafts 

by declining purchases that exceed the account balance. 

Direct Deposit. A checking account is often considered 

the basic service for entry into mainstream banking. 

22 Somesh Khanna, David Schoeman, and Jack Stephenson, 

Profitability Under Pressure, BAI Banking Strategies (LXXIX:II) 

March/April 2003. 

23 Rick Spiler, “The New Survival Skills,” ABA Banking Journal, 

American Bankers Association, February 2005. 

24 Derived from Citibank N.A.’s Web site at www.citibank.com 

(accessed January 14, 2008). The APR in New York is 19.5 percent. 

Specific banks mentioned in this article are used only as examples. The 

FDIC and the authors do not endorse any particular bank or product. 

Checking, particularly when paired with direct deposit 

of payroll or other steady income streams, is considered 

“sticky” in that its convenience tends to anchor the 

customer to the bank. The ability to split direct deposits 

among accounts is a simple and effective asset-building 

strategy, particularly for LMI customers who may be able 

to save only a small portion of their paycheck. 

There is considerable potential for banks to increase 

customer relationships simply by promoting and 

expanding direct deposit programs. According to the 

CFSI study, two-thirds of checks cashed at nonbank 

outlets were payroll checks, and another 18 percent 

were state or federal benefits checks. 

Many banks encourage direct deposit when accounts are 

first opened and may offer special pricing as part of their 

marketing efforts. For example, Apple Bank for Savings 

in New York offers Apple Edge, a workplace banking 

program that provides employees of participating 

employers with either advantaged pricing or waivers 

on minimum account balances if they use direct deposit 

for their paychecks. As of September 2007, more than 

450 employers were enrolled in the Apple Edge program, 

which has generated more than 10,000 deposit accounts, 

many from households employed in traditionally lowerincome professions and located in LMI communities.25 

Providing Nonaccount Services. The most common 

nonaccount service that banks provide to LMI households is free or low-fee financial education classes. 

These classes, often conducted on bank premises, allow 

bank staff to connect with potential new customers in 

a number of ways.26 For instance, some institutions 

have offered LMI customers fee-based transactional 

services—such as remittance services, check cashing, 

and bill payment—without requiring the customer to 

have an account at the bank. The fees are generally 

competitive with, or better than, those at checkcashing outlets. The goal is to familiarize customers 

with mainstream banking and, over time, create more 

profitable banking relationships. 

KeyBank in Cleveland, Ohio—with about one-quarter 

of its branch network located in LMI neighborhoods— 

25 Information regarding Apple Edge was obtained from Apple Bank 

for Savings’ publicly disclosed CRA Performance Evaluation from 

November 13, 2007. 

26 For more information regarding the effectiveness of financial education provided by banks, see Susan Burhouse, Angelisa Harris, and 

Luke Reynolds, “Banking on Financial Education,” FDIC Quarterly 1, 

no. 2 (2007): 33–42.” 

FDIC QUARTERLY 28 2008, VOLUME 2, NO. 1 
Building Assets, Building Relationships 

has been experimenting with fee-based check cashing 

and other transactional services under a program called 

KeyBank Plus. The goal of the program is to transition 

at least 30 percent of check-cashing clients to other 

accounts and services. Although KeyBank has 

reported that the program is not yet profitable, bank 

managers recognize that it takes a long-term approach 

to change consumer behaviors and perceptions about 

mainstream banking.27 

Partnering with Other Organizations. Promoting saving 

through partnerships is another popular strategy banks use 

to build relationships with LMI households. A number of 

government agencies, nonprofits, faith-based organizations, schools, and philanthropic groups offer financial 

outreach programs for lower-income families. By partnering with these groups, banks create goodwill within 

their community while also gaining LMI customers. 

For example, America Saves is a national social marketing 

campaign launched in 2001 that encourages people, 

particularly in LMI households, to save. More than 1,000 

organizations are involved in America Saves, including 

more than 500 banks and credit unions that provide noor low-fee savings accounts to LMI households. To date, 

America Saves has enlisted more than 90,000 people.28 

In addition, the FDIC’s Alliance for Economic Inclusion 

(AEI) has established broad-based coalitions of financial 

institutions, community-based organizations, and other 

partners in several markets across the country to bring 

more households into the financial mainstream.29 One of 

the many programs under the AEI is Bank on California, 

a partnership among the California governor’s office, 

financial institutions, mayors, and community groups to 

market starter accounts for underserved consumers. 

Overall, as of year-end 2007, more than 700 banks and 

other organizations have joined the AEI nationwide, and 

almost 29,000 new bank accounts have been opened. 

Individual development accounts (IDAs) are a relatively low-risk way for banks to partner with nonprofits 

27 Ann Carrns, “Banks Court a New Client: The Low-Income Earner,” 

Wall Street Journal, March 16, 2007. 28 Information regarding America Saves was derived from 

www.americasaves.org (accessed February 11, 2008). 29 The AEI markets are the semirural area of Alabama; Greater 

Boston/Worcester, Massachusetts; Chicago; Austin/South Texas; the 

Kansas City metropolitan area; Louisiana and the Mississippi Gulf 

Coast; Baltimore; Wilmington, Delaware; and Los Angeles. For more 

information regarding the FDIC’s Alliance for Economic Inclusion, see 

www.fdic.gov/consumers/community/AEI. 

and other organizations to introduce LMI consumers to 

mainstream banking through a savings account. Introduced in 1996, IDAs provide matched savings for 

lower-income families who are trying to purchase an 

asset, usually a home, small business, or postsecondary 

education. About 240 banks, usually working through 

community groups and nonprofit sponsors, participate 

in the approximately 540 IDA programs operating 

across the United States.30 

Another way banks promote saving through partnerships is with school-based bank branches that establish 

savings accounts for students. These programs, which 

can also expose other family members to the benefits of 

having a bank account, are particularly beneficial to 

immigrant families, who may face language barriers or 

who are unfamiliar with or distrustful of banking institutions in their home countries. For example, Mitchell 

Bank, an $81 million bank in Milwaukee, operates a 

high school bank branch primarily to reach Mexican 

immigrant youth. 

Leveraging Tax Refunds. Tax season is one of the best 

times to reach out to LMI consumers. Annually, the 

Internal Revenue Service (IRS) processes refunds averaging $2,100 each for more than 100 million taxpayers, 

many of whom are LMI consumers who receive the 

Earned Income Tax Credit.31 H&R Block Bank (a 

subsidiary of H&R Block, Inc., the country’s largest 

tax preparer) offered several new wealth accumulation 

accounts during the 2006 tax season, including the 

Emerald Savings Account and the Easy Individual Retirement Account (IRA). Both accounts have no minimum 

balance requirements and feature competitive yields. 

H&R Block Bank in Kansas City also piloted a small 

program offering savings bonds purchased with tax 

refunds; 6 percent (220 of 3,729) of tax preparation 

clients who were offered this opportunity purchased 

the savings bonds.32 

30 For more information regarding IDAs, see Rae-Ann Miller and 

Susan Burhouse, “Individual Development Accounts and Banks: A 

Solid ‘Match,’” FDIC Quarterly 1, no. 1 (2007): 22–31. As described in 

this article, the Saving for Working Families Act, which was reintroduced in March 2007, includes a proposal to provide up to $1.2 billion 

in tax credits to allow banks to offset part of the cost of opening and 

maintaining IDAs. 

31 Anne Stuhldreher (New America Foundation) and Jennifer Tescher 

(Center for Financial Services Innovation), Breaking the Savings Barrier: 

How the Federal Government Can Build an Inclusive Financial System, 

New America Foundation, Asset Building Program, February 2005. 

32 Nick Maynard, “Tax Time Savings: Testing U.S. Savings Bonds at H&R 

Block Tax Sites,” D2D Fund, June 2007, www.d2dfund.org/downloads/ 

block_bond_paper_061907.pdf (accessed March 5, 2008). 

FDIC QUARTERLY 29 2008, VOLUME 2, NO. 1 
A number of banks also participate in the Volunteer 

Income Tax Assistance (VITA) program, which provides 

free tax-preparation services for LMI taxpayers. VITA 

gives banks an opportunity to open new accounts for 

these taxpayers to facilitate direct deposit of tax 

refunds. Opening a bank account may be even more 

attractive when taxpayers file their 2007 tax returns. 

Under new IRS rules, taxpayers can now split their 

refunds among three accounts, allowing at least a 

portion of the refund to be earmarked for savings. 

Linking Credit and Other Products to Saving. Cash 

back, airline miles, and other rewards programs tied to 

credit cards have been available for many years. For 

example, the One card from American Express links 

a 1 percent rebate on all purchases to a high-yield 

savings account at American Express Bank.33 In practice, most of the rewards programs tied to credit cards 

are largely limited to qualifying middle- and upperincome households. 

However, Bank of America’s Keep the Change program 

is one example of a saving-linked product that is morebroadly available to LMI households and others. Keep 

the Change rounds up debit card purchases to the next 

dollar and sweeps the difference into a savings 

account. The bank also partially matches the 

customer’s annual saving through the program. Bank 

statistics as of November 2007 show that 6.5 million 

customers have saved more than $620 million through 

Keep the Change.34 Wachovia Bank is also experimenting with a new saving-linked product, Way2Save, 

whereby a customer links a savings account to a checking account and receives $1 for every debit card 

purchase, automatic debit transaction, or online 

bill payment.35 

A number of banks also provide “credit builder” products, in which all or a portion of an installment loan 

is placed in a certificate of deposit or savings account. 

When the loan is repaid, the consumer receives the 

account balance plus the interest earned. These products enable customers with no credit history, or with a 

challenged credit history, to positively affect their 

credit score over the life of the loan. Most banks that 

33 Information on the One card was obtained from 

www.americanexpress.com (accessed January 24, 2008). 34 Information on Keep the Change was obtained from 

www.bankofamerica.com (accessed January 8, 2008). 35 Jane J. Kim, “Banks Offer Bonuses to Lure Deposits to Saving 

Accounts,” Wall Street Journal, January 16, 2008. 

offer this product strongly encourage customers to 

retain at least some funds in the account. 

While the credit builder product is useful for consumers 

who wish to build or repair credit, it does not address 

LMI consumers who need access to reasonably priced 

credit for an emergency or other necessity. To address 

this need, a growing number of banks have found ways 

to offer reasonably priced small loans to their customers 

in a safe and sound manner that is also profitable for 

the bank. To encourage state nonmember banks to offer 

these types of products, the FDIC Board of Directors 

issued Affordable Small Dollar Loan Guidelines on 

June 19, 2007.36 These guidelines explore several 

aspects of product development, including affordability 

parameters and streamlined underwriting. The guidelines also discuss tools such as financial education and 

linked savings accounts that may address long-term 

financial challenges for borrowers. 

In addition, on June 19, 2007, the FDIC Board 

approved a two-year pilot project to demonstrate the 

value to banks of offering reasonably priced smalldollar lending programs. The pilot, known as the 

Affordable and Responsible Consumer Credit (ARC) 

initiative, involves 31 banks and will operate through 

mid-2010. While the components of small-dollar 

loans vary among participating banks, these loans 

generally feature streamlined underwriting, reasonable 

amortization periods, and APRs below 36 percent. 

Most also have a saving component, whereby banks 

offer borrowers the ability to set aside a portion of 

the amount borrowed, or a portion of each payment, 

in a savings account. The FDIC intends to follow 

the participating banks closely and periodically report 

on the results of the ARC initiative.37 

Conclusion 

Although LMI households earn less and hold fewer 

assets, these consumers conduct a significant volume 

of financial transactions each year. Moreover, many 

banks already have a relationship with LMI households and are well-positioned to expand these relationships through asset-building products and 

strategies. Banks that are most successful take a long36 FDIC’s Affordable Small Dollar Loan Guidelines can be found at 

www.fdic.gov/news/news/press/2007/pr07052a.html. 37 See www.fdic.gov/smalldollarloans/ for information on the ARC 

initiative. 

FDIC QUARTERLY 30 2008, VOLUME 2, NO. 1 
Building Assets, Building Relationships 

Factors That Determine the U.S. Household Saving Rate 

Put simply, the U.S. household saving rate (shown in shifting demographics, trends in retirement planning, 

Chart 1 on page 23) is personal disposable income and widespread access to credit could also explain some 

minus consumption expenditures and nonmortgage of the decline in the traditional saving rate. Near the 

interest and transfer payments. However, some have end of World War II and continuing into the 1960s, the 

argued that the way this ratio is calculated minimizes its United States experienced a baby boom. The babyusefulness as a true measure of saving. boom generation now represents a larger portion of the 

U.S. population than any other generation. The retire- For example, saving data do not uniformly reflect ment of this generation means that an increasing 

changes in the value of financial assets, such as homes, portion of the population is in retirement and spending stocks and bonds, or private pensions. That is, capital down their previous saving, while a decreasing portion gains on financial assets, whether they are realized or of the population is still working. not, are not included in the household saving data, but 

taxes paid on capital gains realized are included in the Among the working population, defined benefit 

expense portion of the calculation, which reduces the plans—or traditional pensions—have been virtually 

saving rate. Similarly, discretionary extraction of home phased out in favor of defined contribution plans, such 

equity does not count as income, but the portion spent as 401(k) plans. These plans place the responsibility for 

outright counts as consumption expenditures and thus retirement saving on the individual. While many indireduces the saving rate. viduals choose to save in these tax-advantaged plans, 

participants have more discretion to decide how much The omission of financial assets from the calculation has to invest. In contrast, the contribution to defined benea more pronounced effect on the saving rate than in the fit plans was set and mandatory. past because these assets currently comprise a relatively 

larger portion of household balance sheets. For example, According to the Federal Reserve’s 2004 Survey of 

from the mid-1970s through the early 1990s, pension Consumer Finances, 45 percent of individuals cited 

fund reserves, mutual fund shares, and corporate equities retirement as a reason for saving, compared to 23 

together accounted for less than 20 percent of all house- percent in 1989. There has also been a corresponding 

hold assets. In fourth quarter 2007, the combined share drop in emergency spending as a reason for saving (33 

stood at 32.3 percent, which, while below the peak of 45 percent in 1989 compared with 29 percent in 2004). 

percent reached in early 2001, is higher than levels seen Long periods of economic prosperity may have led 

in past decades.a Also, tangible assets, including the some individuals to believe that precautionary saving is 

value of homes, now represent a larger share of total asset less necessary. 

holdings (37.1 percent in fourth quarter 2007) than they 

had during much of the 1990s and early 2000s.b The change in the perceived need for precautionary

saving has been reinforced by increased access to lowAside from concerns surrounding the calculation of the cost credit among middle- and upper-income consumers. 

U.S. saving rate, a change in attitudes about saving, Today, credit cards, home equity lines of credit, and 

other forms of consumer loans are readily available to 

a Federal Reserve Flow of Funds. cover unanticipated expenses without tapping precau- b Ibid. tionary saving. 

term approach and tailor products and services to 

their local market. Some successful strategies include 

“doing no harm” by offering reasonably priced products and services to LMI consumers, expanding direct 

deposit options, partnering with outside organizations 

to obtain motivated customers, leveraging tax refunds 

into saving, and linking saving to credit and other 

bank products. Going forward, there will continue to 

be considerable public debate and numerous policy 

proposals to expand asset-building opportunities for 

all households. 

Authors: Rae-Ann Miller, Special Advisor to the Director, 

Division of Insurance and Research; 

rmiller@fdic.gov. 

Susan Burhouse, Senior Financial Economist, 

Division of Insurance and Research; 

sburhouse@fdic.gov. 

Luke Reynolds, Chief, Community Affairs 

Outreach and Program Development Section, 

Division of Supervision and Consumer 

Protection; lureynolds@fdic.gov. 

FDIC QUARTERLY 31 2008, VOLUME 2, NO. 1