LAKE FOREST, Ill.—Checking account balances are at an all-time high, reports one economist, who says that signals the economy is still tough and that FIs need to prepare for when big chunks of checking deposits move as financial times improve.
According to the Moebs Services Study on Checking Accounts, total checking balances in the U.S. currently stand at $1.716 trillion, an historic high, with $656.8 billion, or 38% of all direct deposit accounts (DDA), from consumers.
“The current average consumer balance is $5,459,” explained Michael Moebs, economist and CEO at Moebs Services. “The normal average balance from 1994 to 2008 is about $2,000. So the current average DDA balance for consumers is about 270% higher than the norm.”
Why is the consumer keeping so much in DDA?
“With interest rates so low the consumer keeps money normally held in interest-paying sources in checking,” said Moebs. “Also, with gasoline prices falling sharply in the past nine months, the consumer is saving about $1 a gallon and much of this savings has prompted about a 7% increase in DDA average balances.”
Moebs said average balances in consumer checking accounts have an inverse relationship to the economy.
“Moebs Services Study on Checking Accounts reports that since 1994 high balances in consumer checking correlate to difficult economic times,” explained Moebs. “The opposite is also true: low average consumer balances signal good economic times.”
Moebs pointed out that for much of 2008, the economy had GDP growing and low unemployment.
“On September 15, 2008, when Lehmann Brothers went down and the Great Recession started, balances in consumer checking were around $1,500 and started to increase,” he said. “The rise was modest until the impact of the Great Recession started to accelerate the balance build up—a consequence of the recession which was deemed over in 2009. Depositories in 2008 and afterward offer consumers savings rates falling below 0.25% – consumers had no place to store their funds and get interest. Even today the amount in consumer accounts commands 0.05% whether in a savings account or DDA – generating less interest in a year than the cost of a latte.”
Of the $656.8 billion in consumer DDA, about $280 billion or 43%, is the normal for the consumer to maintain in a neutral economy at an average balance of $2,000, said Moebs.
“If economic times get very good, the consumer will keep less in checking,” cautioned Moebs. “Financial Institutions need to prepare for when the consumer starts to use the balances in checking and/or moves this money. Consumer checking is a reflection of concurrent economic times – a barometer that investors and financial institutions can use to forecast money movements, and even the Fed can use for adjusting rates.”