Consumers keep more in their bank accounts

Americans are holding more cash in their bank accounts than they have at any other point during the past two decades, a new study found.

The average checking account balance reached $4,436 at the end of 2013, nearly double the average balance of $2,100 during the past 25 years, according to a report released this week by Moebs Services, an economic research firm. Prior to 2003, checking account balances hovered around $2,000, according to the report.

The growing cash piles show that Americans may not feel any better about their situation six years after the financial crisis despite the fact that stocks are soaring and the unemployment rate is down, said Mike Moebs, an economist and chief executive of the research firm.

If people were feeling better about the economy and confident in their jobs, they would be spending that cash, he said. That’s what happened during the boom years leading up to the last recession, when the average checking account balance bottomed out at $778 in 2007.

“The consumer says times are good, the next paycheck is just around the corner” and they spend more money, Moebs said. “It’s just human nature.”

Instead, many jobless have stopped looking for work. Those who are working may be thinking that they won’t be in line for a big raise for some time. Meanwhile, they are cutting back on shopping, going out to eat and traveling so that they can afford their groceries, gas and utility bills, which are getting more expensive.

As Moebs wrote in the report:

“If the economy is doing well as measured by low unemployment and moderate to low inflation and prices, then the average balance in the consumer’s checking account falls to about $1,400. If the economy really heats up, then, in 2007 for example, the balance can fall below $1,000 since household revenue is doing well and need for liquidity is just a paycheck or two away.”

Greg McBride, chief financial analyst for Bankrate.com, said the tactic of holding more cash may be a way for some consumers to ward off overdraft fees, a major source of revenue for many big banks. Others may be holding more cash to avoid fees and meet minimum balance requirements some banks are instituting for checking accounts, he said.

But many people are probably building an emergency fund so that they can cover their bills if they fall on hard times, Moebs said. “They’re saying, ‘Let’s be cautious, let’s not use all of that money.’ ”

Some financial advisers say it may not be smart to hold too much cash in a checking account, where the money won’t earn much interest. But, as Moebs points out, consumers who are counting on using the money soon may not want to risk sticking it in the stock market, and they probably aren’t impressed with today’s low bond yields.

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