NEW YORK (MainStreet) – Americans have added $1 trillion to their savings since the recession began, according to a new analysis from Market Rates Insight (MRI).
Researchers combined data from the Department of Commerce and the Federal Deposit Insurance Corp., which monitors bank deposits.
According to the analysis, deposits in domestic branches of FDIC-insured banks reached an all-time high of $7.74 trillion, an increase of $1 trillion since October 2007, when they totaled $6.74 trillion. At the same time, disposable personal income (income before taxes) also reached an all-time high of $11.48 trillion in October 2010, an increase of $923 billion over October 2007’s total of $10.56 trillion.
“The uncertainty about the prospects of economic recovery is causing consumers to save more and spend less, and to trade higher return for safety by placing the additional savings in government-insured deposits even though the interest rates are at an all-time low,” Dan Geller, executive vice president at MRI, said in a press release.
The latest data continue to defy the conventional theory of price elasticity of demand, which is essentially a principle that describes how savings should decline as interest rates decrease.
Interest rates on deposits started to decline around October 2007, which was the official start date of the last recession, the company said. Back then, the national average interest rate for bank deposits stood at 3.38% and domestic deposits totaled $6.74 trillion. Three years later, in October 2010, the national average rate for deposits has declined to 0.8% while balances have increased to $7.74 trillion.
Despite Americans’ apparent inclination to do so, there are disadvantages to squirreling your money away in a savings account. Find out why it doesn’t pay to save here.
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