Consumers Save $1T Since 2007

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SAN ANSELMO, Calif.-Since the current recession officially began in October of 2007, consumers have added more than $1-trillion to their savings accounts in banks and credit unions, rather than spend this money, a new study has found.

Approximately 92%, or $923 million, of that increase came from the increase in personal disposable income in the last three years, reported the analysis by Market Rates Insight (MRI).

"On the third anniversary of the official start of the last recession, deposits in domestic branches of FDIC-insured institutions reached an all-time high of $7.74 trillion-an increase of one trillion dollars over the amount of deposits in October of 2007, which was $6.74 trillion according to FDIC data," MRI said, adding that concurrently, disposable personal income (personal income less taxes) reached an all-time high 0f $11.48 trillion in October of 2010-an increase of $923 billion over the disposable personal income level of $10.56 trillion in October 2007 according to the data from the U.S. Department of Commerce.

"Another aspect of the one-trillion-dollar increase in deposits is the fact that it was done in defiance of the conventional theory of price elasticity of demand," observed MRI in its analysis. "The conventional theory of price elasticity of demand asserts that deposit balances should decrease when interest rates on deposits decrease. However, in the three years since the official start of the last recession, exactly the reverse has occurred-a phenomenon we termed "reverse elasticity."

Interest rates on deposits started declining around October of 2007, at which time MRI noted the national average rate on deposits stood at 3.38%. Three years later, in October of 2010, the national average rate for deposits dropped to 0.80% (a decline of 76% in return value), yet, despite such a substantial decrease in rates, deposit balances increased by one trillion dollars.

"The last recession had a deep and long-lasting impact on consumer behavior in two major areas," said EVP Dan Geller. "The uncertainty about the prospects of economic recovery is causing consumers to save more and spend less, and to trade higher return for safety by placing the additional savings in government-insured deposits even though the interest rates are at an all-time low."

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