Savings rate plunges, but local deposits continue to rise

It keeps dropping and dropping and dropping.

Like the Energizer Bunny beating on his little bass drum, the idea of putting money into savings accounts is getting more and more unpopular among Americans.

Compare it with the late 1970s and early ’80s. Economists were decrying the savings rate of Americans even then, said Alan Garner, assistant vice president and economist for the Federal Reserve Bank branch in Kansas City, Mo. “They (economists) said it was awful, that it was terrible,” Garner said, before laughing. “It looks pretty good now.”

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What was the savings rate that they were all upset about? Ten percent.

(The savings rate is defined as the amount of disposable income left after taxes, housing costs and all other personal spending.)

“Last year (the national average) was four-tenths of 1 percent,” Garner said. “Some quarters last year it was in negative territory. That was the first time since the Great Depression that we had a negative number in savings rates.”

Kurt Spieler, chief investment officer for the First National Bank in Fort Collins, said the latest Federal Reserve statistics he saw had the savings rate pegged at -0.5 percent. Compare it to saving rates in other countries – Japan for instance – and it doesn’t look very complimentary.

The Japanese savings rate is in the vicinity of 18 percent, said John Green, a regional economist in Fort Collins. Green cautions that is not evidence that Americans are not frugal, because there are some other things to consider. He noted that the Japanese are financially rewarded by the government, via their taxes, for how much they save.

Negative half a point savings does make the 10 percent Americans were saving 20 years ago look fairly sweet. But a little more than 20 years ago, Americans were groaning through an energy crisis and – in some cases – double-digit interest rates on loans.

“When you have a higher inflation rate you get higher savings,´ said Spieler. “People just save more when inflation is high. But even with the low inflation rate now, negative .5 percent … that’s lousy.”

Spieler said the savings rates really started to fall in the 1990s. “It hit about 2 percent,” he said, underscoring the correlation between inflation and the tendency to save.

Northern Colorado bucks the trend

Still, despite the gloomy national picture, statistics show that overall deposits continue to rise in Northern Colorado.

According to FDIC figures, deposits in regional banks totaled $6.31 billion last year, up from $4.22 billion in 2000, an increase of 49.5 percent.

The bigger banks in the region are slightly behind the total regional growth, but still stout. For instance, Wells Fargo Bank’s total deposits in Northern Colorado reached $771.4 million in 2005, up from $559.2 million in 2000, an increase of 37.9 percent. First National Bank of Fort Collins saw its deposits hike to $1.12 billion from $764.2 million, up 46.5 percent.

Some of that growth reflects population, but not all of it. There’s a sign of increasing wealth in the amount of deposits per capita (see chart). In Larimer County, deposits per capita increased 60 percent between 1995 and 2004. In Weld County, per capita savings jumped 42 percent in the same period.

The lag in personal savings rates may have something to do with how bank interest rates compare with other investment vehicles.

Take a short-term yield certificate of deposit with an interest rate of 5.15 percent. Compared to the level of appreciation in a house, which, while not at the white-hot level of the ’90s, can still bring in somewhere in the neighborhood of 7 or 8 percent a year. Looking at those rates of return, what would you want with the CD?

“It might be better for you in the long run (saving), but people don’t have to take the long view,” Green said. “They aren’t taking the short view, either. They are taking a moderate view. It used to be that you stayed in one home a good deal of your life. Now if people move every five years that’s all the farther ahead they have to look.”

The picture is further complicated by the frenzy of refinances over the last five years in response to dropping mortgage interest rates. “When people were refinancing mortgages they were taking the money that they would normally put into savings and putting it back into their houses,” Green said. “Why not? It was appreciating faster and faster.”