Are Americans Saving Enough Now?

The personal savings rate in the USA started to increase since last year when the economy crumbled. Traditionally Americans save less than people in other countries. Europeans, Asians and others are high savers. But in the past how much did Americans save each year? Has the savings rate been always too low? In order to order these questions  I analyzed data from the Bureau of Economic Analysis. The following is a brief summary of this research.The chart below shows the historical trend of personal savings rate against personal disposable income since 1929.


The following chart shows the savings rate as a percentage of personal disposable income from 1929 thru 2008:


Source: Table 2.1. Personal Income and Its Disposition,NIPA Tables, BEA

From 1941 to 1945 during war time the personal savings rate increased significantly reaching 20.4% in 1945.However from the 1980s it started heading down and stayed at a healthy 7.7% in 1992. Since then it continued to get worse. By 2005 it went under 1% to just 0.4%. This is interesting since even during the bubble ear of the late 90s Americans saved anywhere from 2 to 5%. From a low of 0.6% in 2007, the savings rate shot up to 1.8% in 2008 as more of their disposable income than on consumption of goods and services.

If the economy does not improve, savings rate may continue to increase and possibly reach high single digits like it did up until the late 80s. But savers have very few incentives to save as the interest rate on any savings account is at very low levels. The following best interest rates from shows the horrendous rates offered now:

1 Year Certificate of Deposit (CD) – 1.97%
5 Year Certificate of Deposit (CD) – 3.07%
6 Months Certificate of Deposit (CD) – 1.43%

In addition,  some large commercial banks pay 0.01% interest on savings accounts. Some investors are keeping their funds in CDs or money market accounts now in order to protect the principal instead of investing them in the markets. Hence the personal savings rate may be slightly skewed. Overall the growth in personal savings rate is a positive for the long-term. But I would argue that the current savings rate needs to increase substantially before we can say that we are saving too much and that high savings is actually hurting the economy.

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