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Finance

2006: A look back - A look ahead  
  The landscape was schizophrenic in 2006 but a slow economy could fuel a rates war in 2007.
 Checking & savings
 Personal finance calendar  Personal finance calendar 

Savings levels and rates should rise in 2007

One thing financial institutions and consumers have in common for 2007: Both wish they had just a little more in their accounts.

Since people haven't been saving or at least haven't been keeping their savings in banks, the institutions are hurting for core deposits, like savings accounts, says Fritz Elmendorf, vice president of communications for the Consumer Bankers Association.

"Banks are looking for deposits," says Elmendorf. "I think they'll try to be more attractive." As a result you may see better rates on savings products, or better prices on accounts, or reduction or elimination of some fees (like foreign ATM charges.)

Expect it to continue into 2007. "I think banks will test different ideas" on how to attract customers, says Larry Fuschino, director of deposit pricing for Wachovia. He adds that banks that are new to an area will probably be more aggressive with their offers than local mainstays. But that will only last so long. "Over time, everyone reverts to the mean," he says.

Savings rate wars
Expect to see good rates for savings products next year, too. "Rates will stay very competitive," says Fuschino. "I don't like to use the term 'rate wars,' but some markets will be like that."

"What that shows is that savings products have really become commodities out there," says Keith Leggett, senior economist at the American Bankers Association.

And if you are saving, particularly in CDs, you want to make sure your money is earning all you can by shopping rates as those products mature. "This is certainly not a time to fall asleep at the wheel," says Fuschino.

People will be saving more money in 2007, says Steven Rick, senior economist the Credit Union National Association (CUNA).  Consumers will save more next year for several reasons, he says. CUNA is forecasting a slowing of the housing market, combined with dropping home prices, "which will change consumers' spending habits," Rick says.

The organization is also predicting a slowing of the economy. When that happens, consumers buy less and save more, while continued high interest rates strengthen savings, he says.

In addition, "There is very little pent-up demand," Rick says. "The past few years (Americans) have been on a buying and spending binge. After that, you usually see below-trend spending."

Credit unions are predicting their institutions will see a 3-percent increase in savings accounts, a 5-percent increase in money market accounts and a 16-percent increase in CD balances, he says. "People will still be putting their money in CDs," says Rick.

-- Posted: Nov. 1, 2006
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