Behavioral science and bank accounts in Chile: how a measly 0.3% interest rate catalyzed savings

  • By Barry Fischer
  • October 23, 2012

Sometimes, it’s not all about the money.

A randomized field experiment recently conducted in Chile, and published this month by the US National Bureau of Economic Research, reinforces the idea that social incentives can be more powerful than monetary ones.

The experiment examined the bank savings activity of 2,687 micro-entrepreneurs, who were randomly enrolled in one of three different account types when they joined a Chilean community bank:

1)  Basic Account: offered a simple 0.3% interest rate on savings

2) “Peer Group” Basic Account: offered the same 0.3% interest rate, but also encouraged customers to publicly announce a savings commitment — which was then monitored in weekly meetings with other account holders

3) High Interest Rate Account: offered a 5% interest rate on savings

Which group of account holders saved the most money in the bank? By a long shot, it was the participants in the “peer group” account network: they made deposits 3.5 times as often as the “basic” account holders, and their average savings balance was almost twice as high.

But even more impressive, the “peer group” folks (who were earning a measly 0.3% interest rate) also saved substantially more than the customers receiving a 5% interest rate. According to the authors of the analysis, “most of the [5% account holders] did not respond to the interest rate at all.” The reason for the low savings in the 5%-rate group, they postulate, was likely due irrational consumer behavior and a poor understanding of interest rates.

These results certainly don’t prove that monetary incentives are useless. But the experimental findings do suggest that social and behavioral factors — such as peer pressure, commitment mechanisms, and consistent feedback — are powerful determinants of human decision-making.  And that’s true across contexts and countries — whether it be Opower’s efforts to empower households to save energy, a German dentist’s recent initiative to increase patient check-ups, or the Chilean finance sector’s experimental approaches to boost consumer savings.

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