U.S. Savings Rate to Increase? Thank Goodness!

In recent years much has been made about how the savings rate in this country was hovering around (or even below) zero. More and more, Americans have been living beyond their means via credit. With some banks reeling from extending credit to people they should not have, some economic pundits are predicting an increase in the domestic savings rate.

Among them, James Grant of Grant’s Interest Rate Observer:

“The American consumer is no more prone to save than the American Marine is to retreat. However, with joblessness rising, house prices falling, gasoline prices orbiting and credit contracting, even America’s iron wallets must adapt. Hovering near the zero-percent marker, the savings rate has little farther to fall. It takes no great predictive courage to suggest that it may begin to rise, which we hereby do. If the savings rate returned to just half its level in 1992, it would reach 3.9% of disposable income, up from 0.6% at present. Disposable personal income is jogging along at the rate of $10.5 trillion a year. An increase in savings of 3.3 percentage points would amount to $346.5 billion of deferred spending.”

How might this increased savings take shape? Most likely through high-yielding money market accounts like those offered by the likes of M&T Bank, whose M&T Bank eMoney Money Market Account currently offers 3.25% interest. Not surprisingly, large banks are advertising these types of products more and more, as mortgages go bad. It is quite a shift in focus for their marketing plans.

Not only is this good for Americans (who have not saved nearly enough, on average, to retire comfortably at a reasonable age), but it is also good for our banking system. Deposit gathering institutions will welcome the chance to grab some market share in the savings deposit business, and thereby boost their depressed earnings. Increased savings in this country would really be a win-win scenario for individuals and banking institutions alike.

Enjoy this post? Subscribe and never miss another one: RSS | Email | Twitter

One Thought on “U.S. Savings Rate to Increase? Thank Goodness!

  1. Anonymous on August 13, 2008 at 9:14 PM said:

    Many people are predicting the savings rate will start to increase but this is not actual evidence, just a theory. Look at it from the other perspective, as prices increase and wages stagnate it is quite possible that savings rate will actually decrease further. People may tighten their belt but that doesn’t mean the money will be going to savings, they may be forced to just to maintain their current lifestyle. Maybe in the long, long term like 5 or 10 years from now this will also result in people learning to save, similar to the great depression, but in the short-term I doubt it.

    That certainly seems to be the case with the federal government. People though 300 and 400 billion budget deficits were huge, now Bill Gross is calling for $1 trillion deficits in the upcoming years.

Post Navigation