Savings at record lows ... and record highs
By Michael Giusti • Bankrate.com

One perspective of the state of savings in American today is of a nation breaking into its collective piggy bank at a record rate.

At the same time another view of the statistics show the nation's banks bulging at the seams with record amounts of cash socked away by everyday consumers.

While the nation's savings rate did dip into the negative region in 2005 for the first time since the Great Depression, economists say statistics tell only part of the story.

Given this dichotomy of a negative savings rate and a record amount of cash in consumers' bank accounts, economists say it would be hasty to assume America's consumers are all sailing recklessly into the future with no protection from potentially rough financial seas.

Part of the disconnect between the two statistics stems from the difference between what comes to the typical consumers' minds when they hear the word "savings" and precisely what economists are measuring, says Keith Leggett, senior economist for the American Bankers Association.

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. But 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.

By many measures, even with a falling savings rate, U.S. consumers are wealthier than they have ever been.

What the statistics say
The official definition of what an economist calls "savings," according to the federal Bureau of Economic Analysis, or BEA, is "disposable personal income less personal outlays."

In other words, add up everyone's after-tax income and subtract everyone's expenses. The amount leftover is the national savings rate.

According to the BEA, the national annual savings rate fell in 2005 to its lowest point since the Great Depression: negative 0.4 percent. Since then, it has continued to fall, registering at negative 1.6 percent in May 2006 and negative 1.5 percent in June. Compare those numbers with 1985 when the national savings rate hit a record 11.1 percent and it's clear why economists are raising the warning flag.

But at the same time, Federal Deposit Insurance Corp., or FDIC, records show that American banks have more cash in their vaults than at any other point in recent history -- with $6.4 trillion deposited in the domestic offices of U.S. banks as of June. Of that $6.4 trillion, $5.23 trillion was in some type of interest-bearing account, such as a money market account, savings account or certificate of deposit, says Ross Waldrop, senior banking analyst for the FDIC. That's up $500 billion from June 2005.

And while the FDIC statistics don't differentiate between corporate deposits and personal deposits, or between foreign account holders and domestic savers, it's clear that American households aren't all devoid of cash reserves, Waldrop says.

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