Given the choice, which do Americans prefer: to spend or to save? In light of the fact that consumer spending consistently represents over two-thirds of the economy — 68% to be precise, according to official estimates from the White House — their partiality to spending might be a safe bet. Yet as numerous polls have shown over the years, most recognize the importance of saving for a rainy day. And over the past several months now, they are clearly putting their money where their checking and/or savings account is.
Tracing back to when COVID-19 first showed up on the U.S. mainland, bank deposits have soared. Indeed, according to figures from the Federal Deposit Insurance Corporation, they're up a record-breaking $2 trillion. At the height of the lockdown in April, deposits rose $865 billion over a 30-day stretch, CNBC pointed out.
Brian Foran, analyst at the independent global financial sector fact-finding firm Autonomous Research, told the NBC News' cable network that the amount of money Americans are stowing away for safekeeping is without precedent.
"Any way you look at it, this growth has been absolutely extraordinary," Foran remarked. "Banks are flooded with cash, they're like Scrooge McDuck swimming in money."
"The pandemic was the primary motivator for checking and saving account growth."
Experts believe the fallout from the pandemic is the primary motivator. In an extraordinarily short period of time, tens of millions of people across the country filed for unemployment benefits. Indeed, in the six weeks spanning between the middle of March and April 30, the total who did so eclipsed 30 million, CNN reported at the time from Labor Department figures. Furthermore, personal consumption expenditures dipped approximately 13% in April, according to the Bureau of Economic Analysis, as Americans braced for the worst. The latest figure for July showed a modest adjustment of 2% growth.
Big banks received most of the deposits
Most of the deposits that account holders have made were managed by the U.S.' largest financial institutions, accounting for 66% of the volume, FDIC figures indicate. This was partially due to the fact that these same FI's were highly involved in the government Paycheck Protection Program, which gave thousands of small businesses the added financial cushion to make ends meet and keep their companies afloat, CNBC reported. Furthermore, since the nation's 25 largest institutions have the most branch offices, it only makes sense that they ultimately received the lion's share of the federal government's stimulus package, whereby eligible recipients got $1,200 checks and eligible families of four or more at least double that amount. Brian Moynihan, chief executive officer at Bank of America, told CNBC that as much as 40% of personal check accounts with less than $5,000 prior to the lockdown were above that once checks were distributed, a clear indication of recipients preference to save.
Americans plan to keep saving if possible
How long will the savings binge last? As long as it can. While some people are not in a position to save given financial stressors, those that can will likely keep putting money away until there is a viable vaccine. In a survey conducted by Gallup in early August, more than three-quarters of respondents said that they will continue to build a larger cash reserve for the foreseeable future as opposed to buying. Of these, nearly 80% noted they'll keep that money where it already is, in their established checking or savings accounts — a boon to financial institutions both large and small. The second most common response was increasing balances in 401(k), IRA or other retirement plans. As many as 45% of those surveyed said the development of an effective vaccine would have a "major impact" on their willingness to increase their spending, with 26% saying it would have a "minor impact."
These trends represent an opportunity for banks and credit unions to lean into optimizing the retail experience to boost retention and support the bottom line. Whether it's streamlining layouts and creating customer options via branch transformation or improving service with deeper staff engagement, your FI is in a position to capitalize on building a level of trust that is critical for ongoing retention.
As you support your customers and members, BranchServ stands at the ready to fully support your institution however you need us. Contact us today for speed, savings and solutions all rolled into one.