|Negative savings marked 2006
The checking and savings landscape for 2006 can be described in a single word: schizophrenic.
spending more than they earn,
borrowing from savings, taking
out loans and draining home
equity to make up the difference.
Those who do manage to save
are getting better rates on
their savings and short-term
CDs. Consumers have more choices
for free and no-frills checking
accounts, and may also be earning
rewards with their debit cards.
But the number of banks is shrinking, and institutions keep changing affiliations. Fees are still a source of ire for consumers and consumer watchdog groups. And no one seems to know where interest rates are headed next.
"The Federal Reserve continued to raise short-term interest rates, which helped pull rates on savings accounts and money market accounts higher," says Larry Fuschino, director of deposit purchasing for Wachovia. Liquid money at a pretty good rate "is a real benefit for consumers," he says.
"Until last year it was a really dismal rate environment," says Keith Leggett, senior economist for the American Bankers Association. "People were trying to find some place to put their savings. Now they're getting a decent rate."
On average, consumers
are spending 0.5 percent more
than they earn, according to
August figures from the Bureau
of Economic Analysis, says Leggett.
The BEA refers to that as a
rate, but it's not what likely
comes to the typical consumers'
minds when they hear the word
"savings." When typical
consumers hear "savings,"
more often than not they think
about the portion of money stowed
away for safekeeping in a bank
or investment account. To an
economist, that emergency cash
is not "savings,"
but instead is considered "wealth."
"As an economist, we see savings as the absence of consumption. Wealth is the accumulation of assets," Leggett says.
The big news for 2006? People are keeping less money in traditional savings accounts.
For many traditional
accounts, low interest rates
equaled little interest from
consumers. Two exceptions: online
savings accounts and CDs, where
many consumers found deals that
offered interest near 5 percent.
From January through
August of 2006, credit unions
saw balances on savings accounts
drop 3.5 percent, and money
market accounts were up one-third
of 1 percent, according to figures
from the Credit Union National
Association. During that same
period, the amount members were
putting into CDs went up 13.6
Here's why: The return rate on your average credit union savings account is 1.2 percent and the average money market account rate is 2.84 percent, according to CUNA numbers. But the average rate on a one-year CD at a credit union is 4.7 percent.