Negative savings marked 2006
By Dana Dratch • Bankrate.com

The checking and savings landscape for 2006 can be described in a single word: schizophrenic.

Americans are 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 negative "savings" 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.

Banking online
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 percent.

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.

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