Savings rates are inching up in the Lyon County area.
“I think we see a gradual increase in our deposit base and have done so very satisfactorily during the last six months,” said Barbara Carswell, vice president of retail service for Capitol Federal, a regional financial institution with a branch in Emporia. “... (W)e are seeing a lot of people who realize that the safety of return is a lot more important than some of the returns that we see in the market that are disappearing.”
Joe Wendling, president of Olpe State Bank, agreed.
“People are putting their money into their savings accounts and even with the lower interest rates, savings accounts are growing,” Wendling said.
The trend here is similar to one happening nationwide, according to government figures.
The Department of Commerce reported that Americans on average had saved about 2.9 percent of their disposable incomes in the fourth quarter of 2008. The rate is the highest percentage in the past six years.
Money saved in certificates of deposit at banks across the country was up 5.9 percent in December, compared to December 2007, according to figures from the Federal Reserve Bank.
The change may signal a return, at least temporarily, to a savings tradition that had been widespread until recent years.
“We learned at an early age that you save, and I think that’s what the mind set is coming back to,” Carswell said.
Capitol Federal, like several area banks, offers special savings accounts intended to instill the savings habit in children.
Economic upheavals and financial uncertainties seem to be encouraging the adults to do the same. Just how much savings is enough, however, depends on circumstances that include stage of life, employment outlook, family obligations and other individual criteria.
“The old rule of thumb was six months’ savings,” Wendling said. “But it varies from one family to the other, based on their age, how close they are to retirement. So you know probably if you’re an older person and haven’t stayed up with the job market and you get laid off, it’s harder to get back into the market. And if you don’t have a skill, what is your ability to get another job if you get laid off?”
Age, level of debt, number of wage-earners in the family and number of dependents also need to be factored in when considering how much of their disposable income an individual or family should save.
A husband and wife who work for the same company may need to have a heftier nest egg to cushion the family if both workers are laid off or if the company closes entirely.
Other families may need predictable savings, rather than speculating on stocks, to save for down payments on homes, vehicle purchases or retirement security. Sometimes, Carswell said, savings simply is a reassurance for people “who just are really nervous in today’s environment.”
Some customers nearing retirement or already retired may be more vulnerable to sudden drops in investments and income, and have rolled over their 401(k) investments into simple IRAs. The return may be smaller — or larger, depending upon the market — but the interest is steady, and the principal and its earnings are available when needed.
“What I tell people is you have to have enough in savings that you sleep good at night,” Wendling said. “So money in savings probably isn’t the best way to grow a nest egg, but you need money in a savings account or in certificates of deposit to take care of your financial needs.”
Money saved provides capital for banks to lend to consumers, though Wendling noted that if customers are not borrowing money to make purchases, the bank must compete for the fewer loans that are needed. Paying interest on savings without receiving interest from loans does not help banks’ operating costs.
“Because when people become more conservative, they put more money in savings and they also don’t buy non-needed items,” he said. “They don’t buy a new car, as you notice.”
People have continued to buy consumer goods and business products, though.
“And people are still taking trips,” he said. “I think everybody right now is cutting back a little bit, getting a little more cautious. ... Most people are pretty prudent with their finances.”
Part of the appeal of savings accounts, CDs and even simple IRAs, is their availability when needed and their limits for potential losses because of insurance through the Federal Deposit Insurance Corporation.
“(Accounts) are insured up to $250,000, and that’s a nice line of comfort for many people,” Carswell said.
Wendling cautioned consumers to take precautions and investigate before taking action that can be counterproductive. He related the story of people who had worried that their bank in the Kansas City area might be in trouble. Their money would have been insured by the FDIC had the bank closed, but they decided to withdraw all of it. In the process, they lost money.
“They were getting like 3.7 percent on the CD, so they had to take a penalty for taking it out, then they had to put it back in at a lower rate,” Wendling said.
Wendling explained that the Kansas bank commissioner has the authority to shut down banks; FDIC usually has another bank already prepared to take over the failed bank. The closings generally happen on Fridays, to give authorities time to take care of the details of the transfers.
“As long as they’re within limits, the FDIC isn’t going to let them go down,” Wendling said.
Other banks fund the FDIC insurance pool by paying an annual levy — a system similar to the unemployment insurance. The levy is based on a formula that includes a bank’s risk category and assets.
As the FDIC’s need for additional funds rises, the agency assesses additional fees for the stronger banks to pay. Now, an additional 20 “basis points” of assessment has been added to the usual levies, though Congress may lower that amount after the 30-day comment period passes.
The better-managed banks, in essence, pay for the ineffectiveness and inefficiencies of the failed banks, with the long-term goal of protecting account-holders nationwide.
“As long as there are secure banks, safe banks, in the U.S., the FDIC pool is going to be safe,” Wendling said. “Pretty plain and simple.”