ING Direct Survey - 64 Percent of Americans Will Stash More Cash in 2010 Than 2009

Rate information contained on this page may have changed. Please find latest savings rates.

A survey commissioned by ING Direct has some interesting findings on American attitudes towards savings and debt.

A survey commissioned by ING Direct has some findings on American attitudes towards savings and debt. Amongst the findings:

  • Two-thirds, (64 percent) of Americans plan to stash more cash in 2010 than in 2009;

  • More than nine out of ten (93 percent) Americans with children under 18 in the household say earning enough to cover monthly bills is important as a financial goal for the New Year;

  • Close to nine out of ten (89 percent) say building an emergency fund is important;

  • More than two thirds, (71 percent) of Americans say investing more for retirement is important, while 60 percent say paying off credit card debt is an important financial goal for 2010; and

  • Spending less overall is an important financial goal for 91 percent of Americans.

None of this strikes me as surprising.

In addition, the survey found that nearly four in ten (37 percent) Americans are hopeful about America's recovery in 2010, while about one in five (19 percent) are feeling pessimistic or anxious and stressed about the economy. Somewhere in-between these two extremes are a lot of people who don't know which way the economy will go.

The press release quotes the President of ING Direct. He says:

"Americans believe 2010 will bring some economic recovery," said Arkadi Kuhlmann, President of ING DIRECT USA. "However, before Americans can say goodbye to the recession, they must first get their home economics in order. Having a savings account with emergency funds, managing expenses to avoid late fees and interest payments, and eliminating debt should be top priorities this year."

I don't see how the results support that statement. After all, only 37% of Americans were hopeful about America's recovery. But hey, it helps to be optimistic, right?


CD, Savings Rates and Mortgage Rates Down - Weekly Rate Update

Rate information contained on this page may have changed. Please find latest savings rates.

The economic news last week didn't shed any great insight into what the future holds. If anything, the bias was a bit on the slow growth, slippery economic slope path. Several Nobel Laureates including Paul Krugman were talking about the prospects of a double dip recession. According to Krugman there is a 30-40% chance of a double dip. But economists are notoriously incorrect in their projections.

The economic news last week didn't shed any great insight into what the future holds. If anything, the bias was a bit on the slow growth, slippery economic slope path. Several Nobel Laureates including Paul Krugman were talking about the prospects of a double dip recession. According to Krugman there is a 30-40% chance of a double dip. But economists are notoriously incorrect in their projections. The minutges from the December FOMC meeting also showed that the Fed is split on the economy's future. Several governors believe more economic stimulus is needed while others believe that it's time to start withdrawing all of the cash being pumped into the economy. Stalemate. Lastly, the Labor Department jobs report came out towards the end of the week and painted a good news, bad news picture. Good news first. Only 85,000 jobs were lost in December compared to 741,000 job losses in January '08. That's a nice improvement. The bad news, analysts were expecting even better results. Still an impovement of that magnitude is progress even if we are still losing, and not adding jobs.

All of this data points to great uncertainty about the economy. Will it continue to grow in 2010 or slip back into recession? Do we need to worry about inflation or deflation? The bond markets seem to indicate growth is coming. Last week the Treasury yield curve was at its steepest on record (you can read what that means in my post last week). I expect we'll get some kind of recovery although how it will play out in the US is still an interesting topic.

I read an article last week (I would like to link to it but can't find it) that said almost all of the gain household income over the last 20 years has been a result of women entering the workforce. After WWII the US was the richest country on Earth because every competitor lay in ashes. But starting in the 60s competition increased and the easy money made in the US started to slow. So, how will a rising China, India, Brazil, etc. impact American standards of living? I'd say that as long as we are a nation saddled with debt it will be hard to compete. Enormous wealth is being transferred abroad via America's insatiable purchases of cars, electronics, cloths, and payment on debt. The collapse of the banks is not only due to financial mismangement, but also due to the indebtness of America.

In many ways, the US macro economy reminds me of GM. A once powerful entity trying to paper over losses and core problems via financial machinations. In this type of climate I'm a little nervous about just how powerful and enduring this economic recovery will be.

Watching the Patriots lose today to the Baltimore Ravens, I'm also reminded that no one can stay on top forever. Gravity eventually exerts itself. Is the US in that kind of decline? I hope not but need to see some honest, straight-talk before I make up my mind. Part of me fears Americans have lost their pioneer spirit, their ability to sacrifice today for tomorrow. Once again, I hope that's not the case.

CD and Savings Rates

Part of the bankrupting of America is the total disdain shown for savers. Savings and CD rates continue to hover at pitiful rates. As long as the Fed keeps its Fed Fund rate at 0-.25% we're not going to see any significant increase in savings and CD rates. Average savings rates reached a new record low of 1.54% APY last week, down 1 basis point from 1.55% APY the previous week. Average nne-year CD rates dropped 2 basis points to a record low of 1.92% APY. Average three-year and five-year CD rates remained steady at 2.66% APY and 3.18% APY respectively.

Savings,CDRateAnalysis

Like the Treasury yield, BestCashCow has developed its own yield ratio for deposit accounts - the spread between savings rates and 36-month CDs. In some ways, this ratio is purer because it cannot be influenced by government debt, Fed Treasury purchase programs, and other attempts to manipulate rates. As you can see below, the ratio between savings accounts (a short duration deposit account) and 3 year CDs has dropped slightly over the past three weeks. It's still at a very elevated level though, mimicking the Treasury curve. We'll be watching how the ratio develops over the next month to see if it provides any additional clues to the state of the market in 2010.

SavingsandCDSpreadAnalysis

At this point it's still hard to recommend putting money into anything longer-term than a 12-month CD, especially with rising equity markets and signs that the economy may be coming back to life. Many depositors may be willing to lock money away for 5-years at close to 3%. To me that's just not enough of a return for that period of time. For those worried about interest rate risk, cd laddering may be a good way to smooth out the return you receive from your CD portfolio.

Mortgage Rates

Mortgage rates have benefited over the last year. Keep people buying is the government's mantra. And so the Fed has artificially lowered mortgage rates by buying up every mortage backed security they can get their hands on. As the Fed's program reaches an end, mortgage rates are starting to inch back up.

Last week though broke the trend of four straight weeks of mortgage rate increases. The average rate on a 30-year fixed mortgage dropped from 5.14% to 5.09% according to data from Freddie Mac. This is consistent with data from the BestCashCow rate tables which show average 30-year mortgage rates moving from 5.211% to 5.143%.

The 15-year FRM this week averaged 4.50 percent down from from last week when it averaged 4.50 percent.  The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.44 percent this week, flast from last week's 4.44 percent. The 1-year Treasury-indexed ARM was flat, averaging 4.33 percent again this week.

 

WeeklyMortgageRates-12-31-2009

 

The forecast though it for rates to continue to rise over the next year.

The rates above are just averages. To find the best mortgage rates in your area, visit the BestCashCow mortgage rates tables.


Savings Accounts Vs. Money Market Deposit Accounts

Savings Accounts Vs. Money Market Deposit Accounts

Rate information contained on this page may have changed. Please find latest savings rates.

There are numerous types of bank accounts casual consumers have, but how many people know the differece. This article explains the difference between checking, savings, NOW, and money market deposit accounts.

Picking the right bank account can be like staring down the counter of a convenience store. I stop in for a quick snack and there are forty different varieties of chocolate bars staring me down: caramel, nougat, peanut, crispy wafer. So many variations of the same thing that I don’t know what they all are anymore. 
 
I get the same feeling when I look at my bank accounts…all five of them, and my other investments. What happened to the basic checking account?  The type where you went to the bank, spoke to a person, and received a toaster.
  
But so many of us out there, at this time, are not necessarily trying to increase our wealth, we’re holding on to what we have its value…its purchasing power. To keep up with inflation, stagflation, or even deflation, consumers need to be educated as to what type of candy bar they are buying – or better yet, what type of account they are really putting their money. Most of us out there have a checking account but how many of us know what a checking account really is?
 
A traditional checking account is a demand account, meaning that the funds are always supposed to be available for withdrawal. This is as clear and dry as the federal rules can be. However, here is the wrench – demand accounts, because of Government Regulation Q, are required to not pay interest. Regulation Q (now migrated to Regulation D) set limits on the interest banks can offer. From the bank’s perspective this makes sense as they are simply acting as a fire proof mattress to store your money for future use. Yet, there are no more toasters to incentivize consumers – and from an early age we are imprinted with the ‘let your money work for you’ philosophy of money management. So, what have banks done?
 
Well, on a very basic sense, they created different candy bars. My online internet bearing checking account is actually a Negotiable Order of Withdrawal (NOW) account. This complies with Regulation Q. This new product allows one to have access to an unlimited amount of checks, but also the benefit of earning interest. 
 
So with two of my accounts explained, I have two types to go. Savings accounts, online and traditional, are very simple. They are places where banks store your money, figure you will not be demanding redemption of it frequently, and use this money to build their reserves. They will loan this money, charge a slightly higher interest, and pay you for letting them use your money. The advent of the virtual or online savings bank account has cut down overhead, as rent and employees are expensive. Because of this lack of expense, interest rates tend to be higher. Some will have regulations stating how frequently one can withdraw and charge fees for additional withdrawals or have stipulations on amount per withdrawal. Some may have minimums, some may have cumbersome websites, but that is for the consumer to decide. Ask questions, call the bank, they all will have customer service.
 
So, with all that said, what exactly is a money market deposit account? This is an account that has high interest rates – as it is not technically a demand account. These rates are higher than NOW accounts because banks make a similar assumption as they do to savings accounts, that the demand for this money will be less frequent than checking accounts so will use these funds to build their reserves. They have check writing abilities – but stipulate how many withdrawals (electronic or check) one may make in a statement cycle, and frequently amounts that may be withdrawn per transaction or statement cycle.
 
All of these accounts serve a purpose. Checking accounts provide immediate access to your funds via an insured institution, but the banks do not pay you for the use of your money. Savings accounts provide a no-risk medium for storing your money and have interest, but do not allow immediate access to the funds. One may have delays in transferring money in and out of the account, and/or be charged fees for access/transfers. NOW accounts provide immediate access to funds, but with limited interest accruing on the funds and are a relatively new vehicle, yet to be tested over time. Money market deposit accounts provide immediate access to your funds, yield savings like interest rates, but have withdrawal restrictions.
 
I was a teller in a previous life, and since then I have not spoken, face-to-face, with a teller more than five times in the last nine years. I may be mildly extreme having so many accounts (not including brokerage accounts), but I’m not that abnormal. I am a day saver – one who constantly shops around for the best savings account rate. While the difference of, say, 0.25%, may not make a huge difference with my meager savings now, someday it will.
 
I personally like the ability to write a check with direct access to my savings (which I keep in a money market). Each person can and should choose their accounts based on their needs, but also on their personal taste and learn which type will compliment the best use and ease of access to their money. Some people like chocolate with coconut and some people like gummy bears.