LAKE FOREST, Ill.—Total checking account deposits have reached almost $2 trillion–the highest total in U.S. history, and a sign that consumers are still uncertain about the economy’s future, says one economist who is offering up seven things every credit union should be thinking about.
“Checking deposits represent 12.7% of all money stock, which includes M1 (transactions), M2 (insured deposits) and M3 (uninsured deposits),” said Michael Moebs, economist and CEO of Moebs $ervices, who cautioned that these funds could move quickly once rates begin to steadily move up. “We wonder why the American consumer is not back into the economy since the Great Recession in 2008. The consumer is not spending money, and instead, is stockpiling funds in checking due to uncertainty.”
Looking back 25 years, checking accounts historically ranged from about $600 billion to $800 billion in total deposits, explained Moebs, whose company just completed a new checking study. However, since 2008, this range has increased from about $800 billon to almost $2 trillion.
“When comparing both interest bearing and non-interest bearing demand deposit accounts (DDAs), the trend was that both were equal. However, in the past decade only about 28.5% is in an interest-bearing checking account. “This imbalance between the two basic forms of checking further confirms that consumers are uncertain about the economy and stockpiling their money,” Moebs pointed out.
25 Years Of Data
Michael Moebs, Moebs $ervices
Moebs Services has tracked checking account balances for more than 25 years. The median account balance of $1,500 is a standard used to gauge how consumers and small business see the state of the economy. The median is used as the norm to avoid fluctuations found using average, said Moebs.
“The average amount in a checking account is a concurrent measure of economic circumstances,” said Moebs. “A checking account balance gauges whether or not economic times are positive or negative.”
If the average balance of checking accounts is below $1,500 the economy is growing and consumer is spending, as seen from 1997 to 2007, said Moebs. If the checking balance is above the overall median, then times are difficult and consumers stockpiles money.
At Year End of 2016 the average checking balance was approximately $3,500, which is more than twice the norm, noted Moebs.
“The high balances show consumers believe there is still a level of risk existing in the economy,” said Moebs, adding that that the political shift following the latest elections has only intensified the consumers’ uncertainty.
Pay Attention Here
Moebs emphasized that financial institutions should think about the following:
- Almost $500 billon of the $1.954 trillion DDA funds are consumer dollars, which could move quickly if the consumer thinks it is time to spend or invest some of the money they have stockpiled.
- “Are you ready to help the consumer move this money to another deposit account at your institution? What if they move money out of your institution? Are you prepared to handle a reduction in deposits?” asked Moebs.
- If DDA money moves out of the institution, does the CU have a strategy to replace these lost funds?
- “Other depositories will lose funds too, so can you replace these dollars from your competitors? Do you have unused debt lines to support a reduction in DDA? What is the cost?” said Moebs.
- Are there municipal, county, state, or federal deposits to obtain? What is the cost?
- Does the CU have a high interest DDA account or money market deposit account to retain and attract balances?
- “Most important, do you know the customers or members who could move their money from checking? These uncertain times can be risky times for consumers and small business, and many depositories,” noted Moebs. “You need a plan to replace potential lost funds, or to shrink your financial institution.”