|Negative savings marked 2006
"People are saying 'I'll give up the liquidity for a 4.7 percent return," says Steven Rick, senior economist for the organization.
Internet savings accounts, many of which offered rates comparable to CDs, really caught on with the public. "There was a much stronger move toward them," says Mark Oleson, director of the Office for Financial Success at the University of Missouri. "For whatever reason, people started feeling more comfortable with them.
One example, 156-year-old Emigrant Bank has $4.5 billion in branch deposits, while its two-year-old Internet division holds $8 billion in deposits, says John Hart, vice chairman of Emigrant
"It now pays consumers to be much more savvy about how to use the latest consumer products, which are Internet products," he says.
On the other end of the spectrum, intense competition fueled by mergers and Internet banks also helped those who still want a more personal touch. "While there was this push for online banks, there was also a push where people are interested in more local services," says Oleson. For some it's a case of, "I would rather have somebody locally who knows me and who I can talk to," he says.
account rates are slower to
increase along with market rates.
But this year, consumers saw
"offering more competitive
rates on their accounts,"
CDs turned upside down
Institutions saw more consumers putting money into CDs, which tend to reflect higher interest rates more quickly than traditional savings accounts. Through the first half of 2006, CD savings went up 11.3 percent for people with balances of more than $100,000, and up 8.8 percent for people who were saving less than $100,000, according to figures from the Federal Deposit Insurance Corp. During the same period, growth in interest-bearing checking accounts was up just 0.4 percent.
With CDs, short-term
investments were paying better
rates than long-term; a situation
that economists refer to as
an "inverted yield curve."
"People who wanted to get
good rates on CDs had to go
shorter and shorter," says
Fuschino. At the beginning of
the year, this meant buying
a 14- to 16-month CD. Now consumers
are likely seeing the best rates
at three to four months, he
At the same time,
banks are hurting for deposit
money. "Banks have been
in a very competitive market
for a long time for deposits,"
says Fuschino. As a result,
they are doing "innovative
new things in the industry to
attract more customers and attract
more balances," he says.
What you saw this year: a proliferation
of "free" checking
products, savings accounts requiring
lower balances, gift giveaways
and crediting customers a certain
amount for opening accounts.