The “cycle of savings” is the ongoing act of building, using, and replenishing savings that strengthens financial resiliency and allows families to invest in their financial security.

This insight, highlighted in the Aspen Institute Financial Security Program’s new report, The Cycle of Savings: What We Gain When We Understand Savings as a Dynamic Process, emphasizes an important distinction Commonwealth has made between “dynamic” short-term emergency saving and traditional saving, which aims to build rising balances over time.* This framing of savings is not only critical to understanding how low- and moderate-income (LMI) households save and what they need in a savings product, but as the report highlights, it underscores a gap in the market. According to the report, an “insufficient number of savings products and services match” the way LMI households save.

As financial institutions and fintechs look for more ways to support their customers through the COVID-19 pandemic, emergency saving products have never been more needed. Indeed, despite Americans’ deepened financial vulnerabilities, the overall U.S. savings rate, which had reached historic highs at the start of the pandemic, remains high. This commitment to saving demonstrates Americans’ desire to be better prepared for the immediate but uncertain future.

As financial institutions and fintechs work to develop and champion emergency savings products, Commonwealth has identified five design principles to support the dynamic saving and unique needs of LMI households.

5 Design Principles for Emergency Savings Products

1. High liquidity: Emergency savings products designed with a build-use-rebuild philosophy enable users to easily and immediately access funds, allowing them to address emergency expenses before they incur additional costs like taking on debt. Research has shown that users have a strong preference for highly liquid emergency savings accounts. Further, the Federal Reserve Board’s Reg D amendment—which eliminates the six-per-month withdrawal limit on savings accounts— now makes it much easier to provide short-term liquid savings options, should banks and credit unions choose to enact it.
   
   
2. Low and transparently communicated costs: Typical features like monthly maintenance fees and minimum balance requirements can make savings prohibitively expensive. Additionally, hidden costs and fees can diminish consumer trust in financial institutions. Many financial institutions have reinstated fees that were waived as an initial response to COVID-19. Financial institutions now have a unique opportunity to rethink these fees and develop accessible products.
   
   
3. Innovative distribution channels: Accessibility to a product can play a strong role in facilitating regular savings behavior. Meeting consumers at locations they find convenient and through channels they trust is key. The workplace is a key channel, as employees look to their employers for solutions. This is also a moment to explore other non-traditional channels. For instance, our work developing Prize Savings on the Walmart MoneyCard mobilized over $2 billion in savings in two years. The solution offers convenient access and high brand recall value, as Walmart is a frequent touchpoint for consumer financial transactions. Cross-sector collaboration like this will be pivotal to achieving scale and active usage.
   
   
4. Positioning: Just as consumers rely on checking accounts for everyday planned expenses and traditional savings accounts for longer-term planned expenses and wealth building, emergency savings accounts have their own characteristics and meet distinct needs. For example, a recent Commonwealth study showed that participants who associated rainy day goals with their prize-linked savings accounts used their accounts more frequently to build and withdraw emergency funds. How financial institutions and fintechs position emergency savings products to customers is critical to their success.
   
   
5. Digital transformation: Half of U.S. banking customers engage digitally with their financial institutions either “infrequently” or “not at all,” but as the pandemic accelerates digitalization, customers who are less digitally engaged will need extra support to keep up. According to PYMNTS, 79% of respondents say that digital experiences are important when choosing a primary financial institution, and some would switch to financial institutions that offer better mobile experiences. As financial institutions reimagine banking experiences in light of COVID-19, they now have an opportunity to rethink and re-design products and experiences that provide a frictionless customer journey for all customers, enhancing their customer service and competitiveness.

Designing for a Financially Secure Future

According to our national perception survey, 58% of respondents believe financial institutions need to do more to address financial insecurity. As COVID-19 continues to ravage the economy, financial institutions and fintechs are now in a unique position to help chart an inclusive recovery and address America’s widespread financial insecurity. Emergency savings are a critical coping strategy that enables families to stave off financial shocks and build resilience.

By developing and promoting emergency savings products informed by human-centered approaches, financial institutions and fintechs can provide LMI customers with suitable avenues to build much needed short-term savings, and advance financial resilience and security.

*Commonwealth is also a member of the Aspen Institute Financial Security Program’s Consumer Insights Collaborative and contributed to the writing of this report.

BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.