Can we frame CDs to better align with our mental models?
- Interventions
- Types of savings products, Types of savings products + different savings rates
- Experiment Type
- Field Experiment
- Goals
- Save more
- Outcomes
- Increase short-term savings
- Focus Areas
- Product
- Behavioral Concepts
- Framing Mental models
- Partner
- Simple
- Partner Type
- Fintech/tech
- Collaborator
- Irrational Labs, Simple
What Happened
It worked. It appears that there may be negative mental models that unfavorably impact CDs. Reframing the CD as a "Super Locked Savings Goal product" with an explicit interest rate led to the best results.
It worked. Both the reframing of the locked-savings product and the change in interest rate led to significant differences in the likelihood to invest in the respective products.
Lessons Learned
Reframing a CD in another way that doesn't carry a negative connotation (e.g. "Super Locked Savings Goal product") with an explicit interest rate may impact how likely someone is to put money into a locked-savings product.
There are two lessons here: 1) it seems that reframing a CD as a "Super Locked Savings Goal product" may increase the likelihood to invest in a locked-savings product, and 2) it seems that a 3% interest rate (vs. a 2% interest rate) may increase the likelihood to invest in a locked savings product.
Background
Locked savings products have shown impressive results outside of the US is not only increasing savings, but also investment and income when money saved in a locked account serves as inputs for a productive activity. Simple, a Common Cents Lab partner, wanted to explore developing a time-locked savings product.
In the US, most time-locked savings products are called certificates of deposit (CDs). We hypothesized that locked savings products are less successful in the US than they could be mainly because people have certain mental models around what CDs are used for and who are the kinds of people that make use of them. We designed and launched two separate survey experiments to test this hypothesis.
Key Insights
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There are a number of ways that we believe mental models shape how CDs are thought of and used by people. First, CDs are seen as antiquated products which were popular in past generations. The perception of CDs as a non-modern financial products limits both their utility in a modern market but also shapes perceptions of whose needs a CD is intended to meet.
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Secondly, CDs are seen as a bad investment. In some ways, CDs are mentally categorized closer to investment accounts than as a savings account. CDs have low-interest rates and, as such, people view CDs as having limited upside value.
Experiment
In the first experiment, a panel of 290 Americans were shown one of two accounts: one named a fictitious “Super Locked Savings Goal product,” which would have no negative mental models attached to it, and a traditional “Certificate of Deposit (CD).” We also wanted to test the impact of an explicitly declared 2.5% interest rate compared to the value proposition of being able to “lock money away from yourself.”
In the second experiment, we continued testing our fictitious “Super Locked Savings Goal product” compared to a “Certificate of Deposit (CD)” with 344 Simple users. In the second round, we tested the impact of a meaningful, but feasible, interest rate change for both products (2.0% vs. 3.0%).
In both experiments, we were interested in how likely the respondents were to put money into the product and, if they used it, how much they would expect to save with the product.
Experiment 1
Condition 1: An online bank is offering a Certificate of Deposit (CD) in which you can earn a 2.5% interest rate if you keep money in it for 6 months.
Condition 2: An online bank is offering a Super Locked Savings Goal product in which you can earn a 2.5% interest rate if you keep money in it for 6 months.
Condition 3: An online bank is offering a Super Locked Savings Goal product in which you can lock money away from yourself for 6 months.
Experiment 2
Condition 1: Simple is offering a Certificate of Deposit (CD) in which you can earn a 2.0% interest rate if you keep money in it for 6 months.
Condition 2: Simple is offering a Certificate of Deposit (CD) in which you can earn a 3.0% interest rate if you keep money in it for 6 months.
Condition 3: Simple is offering a Super Locked Savings Goal product in which you can earn a 2.0% interest rate if you keep money in it for 6 months.
Condition 4: Simple is offering a Super Locked Savings Goal product in which you can earn a 3.0% interest rate if you keep money in it for 6 months.
Results
The results in both experiments indicated that people rated the Super Locked Savings Goal products as more likely for them to put their money into compared to the same account labeled as a CD. Overall, we found that the results affirmed our hypothesis that negative mental models unfavorably impact CDs.
We found that there was no statistically significant difference between conditions in terms of how much money people said they would put into the products, but savings account balance was predictive of how much money people say they would be willing to put into a product.
Both experiments indicated that how willing someone was to put money into the offered account was sensitive to interest rates. In the first experiment, the advertising a 2.5% interest rate outperformed simply saying “lock money away from yourself.” The second experiment found that changing from a 2.0% to a 3.0% interest rate significantly increased how likely someone was to put money into the product.
Interestingly, switching from a CD to a “Super Locked Savings Account” had the same positive effect as offering 3% interest compared to 2%. Overall, both experiments support our hypothesis that CDs have negative mental models associated with them that may be negatively impacting the potential of locked savings in the US.
