bank rates

Trillions Flow Into Low-Interest Savings

Despite incredibly low interest rates, we just keep pouring money into banks.

Total savings deposits at banks and thrifts topped $7 trillion for the first time ever this fall, according to data from the Federal Reserve.

That’s up from $2.5 trillion at the turn of the century — when you could earn a reasonable return on your money — and just $4 trillion in 2009.

Individuals and businesses have put an additional $3 trillion in low-paying savings accounts, money market accounts and certificates of deposit since the Great Recession, when interest rates crashed.

It seems that the stingier banks get, the more money we give them.

Why do we do that?

Allen Sanderson, senior lecturer in economics at the University of Chicago, thinks the economy’s slow recovery from the financial crisis and recession has a lot to do with it.

“From the consumer’s point of view or the household’s point of view, there’s still some uncertainty about what the weather forecast is going to be like,” Sanderson says.

When savers are nervous about their jobs, health care costs or the general economic outlook, they want their money where it’s safe and easy to reach in an emergency, which means the banks.

No doubt, savers aren’t exactly thrilled with the idea of investing in the stock market either.

Only 24% of middle-class Americans in all age groups are confident in the stock market as a place to invest for retirement, according to a recent Wells Fargo study conducted by Harris Interactive.

Nearly twice as many respondents (45%) said equity markets don’t benefit people like them, and over half said they don’t invest in stocks because they’re afraid of losing their nest egg.

Brian Hogan, president of the Equity Division of Fidelity Management & Research Co., says our lives have been roiled by one major event after another since 2001 — 9/11, the U.S. financial crisis, a European financial crisis, a dysfunctional Congress and oil spills in the gulf, to name a few.

He thinks that traumatized middle-income savers are stashing their money in bank accounts, regardless of the return, because they can’t see all of the opportunities the future could bring.

“A lot of times investors invest with an eye in the rearview mirror, as opposed to an eye looking out through the front windshield,” Hogan says. “And when you invest with an eye in the rearview mirror, you’re concerned about a lot of things that have already happened, and you don’t fully factor in certain things that could occur.”

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