As Apple celebrates the successful launching of their new high yield savings account (in a tie up with Goldman Sachs – cool your jets there’s no iBank yet and its FDIC insured) by booking over USD10 Billion in deposits since its launch in April 2023. This sudden influx of deposits is lured in by the 4.15% APY being offered by the tech giant and they’re not the only ones, there are numerous sponsored content out there right now highlighting APYs for savings accounts with up to 5% APY. As interest rates were raised again by the Fed the US banking system is now pushing savings rate higher by raising APY on savings accounts, however recent data collected for personal savings in the US is at 4.6% last February 2023 and almost hit a new 15 year low when savings rate was at 2.3% in October 2005. For reference, the average savings rate for the US has been hovering around 8% on average for most of the 2010s, except for 2020 where pandemic shutdowns saw savings rate rise close to 30% as most consumers did not have the usual avenues for their spending available and government subsidies bolstered the economy.
As inflation is making money’s worth go down as it keeps rising, Econ 101 dictates that the savings rate going into new lows could lead to negative consequences. The few that stand out the most in this scenario are reduced resilience during a recession, increased consumer spending, reduction in investment, and an increase in borrowing. Should the US savings rate not bounce back up in the coming months it will put on more stress to an already overstressed banking industry in terms of liquidity as the deposits accumulated during the pandemic shutdowns trickle out faster than the tenors of loans they lent out during the pandemic. That in turn can of course lead to a downturn in terms of investment as lower savings implies lower money available to lend out for the banks and this supply of money used for investment dries up quicker in a low savings environment as may in turn lead to increase in borrowing. However, those are for businesses, as an individual (especially for those with low financial literacy) these low savings environments will push them to spend more as there is little to no benefit to keeping their money in savings accounts as the other investment opportunities are either inaccessible or too complex for your average individual. Subsequently, as savings dries up and less of that goes to investments (new/growing businesses) and spending increases this specific scenario will lead to a less resilient economy should a recession still rear its head in the road to US recovery.
Like all national accounts, the savings rate should also be looked at in context. The previous paragraph lays out a bunch of bad stuff that can happen if the US savings rate doesn’t come back up and should serve as a signal for reassessing what your economy is telling you: inflation rates are rising, banks have been failing, the world is ending, and save yourself and the US economy by saving your money for now while taking advantage of Apple’s new Apple Pay Later service line.