The shaky coronavirus economy has promoted people to sock money at levels not seen since 1981.
A Bureau of Economic Analysis report released on Thursday (April 30) indicated that the savings rate escalated to 13.1 percent in March, with people putting away $2.17 trillion. Comparatively, the savings rate in February was 8 percent. The savings rate peaked at 12 percent in December 2012 but dropped to 5.8 percent in 2013.
“The savings rate had risen dramatically in the last couple years already,” said Robert Frick, corporate economist with Navy Federal Credit Union, in a tweet on Thursday (April 30). “Speculation is people were bracing for the next recession. I don’t look for silver linings, but the more people bank, the better the recovery.”
People are saving more despite low interest rates that won’t that yield much. The Federal Reserve dropped interest rates to zero amid the pandemic.
Fed chair Jerome Powell said at a press conference on Wednesday (April 29) that people who are relying on their bank’s savings accounts as their sole source of investing will not ¹benefit from low interest rates.”
Lower spending could be the reason more people are saving as spending plummeted 7.5 percent in March, the BEA report indicated. The country experienced big declines as “consumers canceled, restricted or redirected their spending.” Americans also spent less on non-essential medical care, leisure, recreation and autos — but more on food.
Unemployment spiked once again with another 3.8 million people seeking benefits last week.
As stimulus funds began hitting bank accounts, much of the money is going into savings accounts instead of actually stimulating spending. Consumers won’t spend on anything that isn’t an absolute necessity — like food, transportation or housing — and are more enthusiastic about hoarding their cash.
According to recent PYMNTS data, nearly three-quarters of those surveyed reported ordering from restaurants less. In addition, 59 percent reported grocery shopping less and 51 percent reported shopping for non-grocery items less.