The median American household has a combined balance of $10,000 in its checking and savings accounts, according to a census estimate. For the last few years, anyone keeping this amount in a high-yield savings account has earned close to 4 percent annual interest, or about $400 a year.
But the average savings account interest rate is closer to 0.4 percent. And the nation’s three largest banks — Bank of America, Chase and Wells Fargo — offer 0.01 percent on their standard savings accounts. That works out to $1 in interest a year for a $10,000 deposit.
Banks make up for those dismal rates with perks like numerous branches and A.T.M.s, but they also know many of their customers won’t hunt for better deals out of inertia.
Now, the Consumer Financial Protection Bureau says one bank, Capital One, went too far by intentionally creating confusion so that customers wouldn’t know to switch to a higher-paying account at the same bank. Here is the difference in what they would have earned in interest:
The consumer bureau sued Capital One in mid-January, arguing that the bank misled customers by creating a new high-yield account called 360 Performance Savings, while letting an existing account, 360 Savings, languish at a lower interest rate. The bank had earlier advertised that account as having “one of the nation’s highest savings rates.”
The agency estimated that Capital One avoided paying $2 billion by not automatically converting each 360 Savings account to a 360 Performance Savings account.
The bank has said it disagrees with the characterizations made in the consumer bureau’s suit and will dispute the claims in court.
As weak as the 360 Savings account was compared with the newer account at the same bank, the lowest rate it ever reached was 0.3 percent, still about 30 times higher than the nominal rate that most big banks pay.
Those banks could hardly pay lower than 0.01 percent: The Truth in Savings Act requires them to disclose interest rates to the nearest two decimal points, so they can’t name a rate lower than 0.01 percent without simply listing 0 percent.
Banks know their customers are generally not attentive to account details. A study commissioned by Capital One found that many people check their savings account less than once a month, and about half don’t know what interest they are earning.
Is making a profit from customers’ inattentiveness illegal? Or just the normal business of being a bank?
Christopher Peterson, a law professor at the University of Utah who has worked for the consumer bureau on previous cases, said specific claims Capital One made on its original 360 Savings account, like advertising the account had a “top savings rate,” may mean the bank is liable for damages. By 2023 the rate was lower than the national average and one-tenth the rate of the 360 Performance Savings account.
One question raised by this case is whether Capital One had an obligation to continue offering a “top savings rate” on the original account years into the future. The bank’s advertising did not mention future rates. But the Dodd-Frank Act of 2010, Mr. Peterson said, established that “a financial service provider could be held liable for taking unreasonable advantage of consumers’ inability to understand the products that they are being offered.”
The consumer bureau alleges that the bank instructed its branch employees not to volunteer information about the new account. And although customers were able to switch accounts at any time with no fee, the bank didn’t email its existing customers about the new account until the agency began its investigation.
Many customers probably don’t compare their savings account rates against what the Federal Reserve is doing. When the federal funds rate fell in 2020, Capital One’s 360 Savings rate fell along with it. But in 2022, when interest rates started to rise again, the 360 Savings rates never came close to highly competitive levels again. (The 360 Performance Savings account did increase its rates substantially.)
This is the first such case brought by the consumer bureau, in the waning days of the Biden administration. Scott Pearson, a lawyer who represents banks in regulatory matters, said the agency had “overstepped their authority” by suing Capital One.
Mr. Pearson noted that banks aren’t expected to alert customers every time they are eligible to refinance a mortgage. “There’s lots of case law saying that financial institutions don’t owe fiduciary obligations to their customers,” he said. “I don’t know why anyone would think that it’s the bank’s job to tell you that you can get a better deal somewhere else or that they’ll give you a better deal. That is just kind of a shocking and unprecedented theory in my view.”
For now, most of the largest banks feature nebulous advertising about saving for the future while offering extremely low interest rates. Chase, for instance, encourages customers to sign up for a savings account to “earn interest,” but its standard interest rate is 0.01 percent.
Over the last decade, an account earning 0.01 percent annual interest would have gained just $10, compared with about $2,000 if the same money had been kept in a consistently competitive savings account.
It’s not clear if the legal theory in the Consumer Financial Protection Bureau’s case will be put to the test. On Saturday, the agency’s director, Rohit Chopra, was fired by the Trump administration, and a new director could choose to be less aggressive in pursuing existing claims. Many allies of President Trump have been critical of the bureau, including Elon Musk, who last year declared “Delete CFPB” on social media.