Introduction to American Savings
In today’s financial landscape, saving money has become more than just a prudent habit; it’s a cornerstone of achieving significant financial milestones without succumbing to debt. As we navigate through the post-pandemic era, the dynamics of saving in America have undergone notable changes. While the early days of the pandemic saw a surge in average savings account balances, the scenario looks quite different in 2023. Despite a dramatic increase in interest rates over the past couple of years, personal savings rates haven’t mirrored this trend. This article, brought to you by DollarGeek, delves into the current state of American savings, exploring the multifaceted factors that influence an individual’s ability to save and the general desire to enhance savings.
2023 Savings Statistics at a Glance
As of April 2023, the total personal savings in the U.S. amounted to a substantial $802.1 billion. This figure represents the personal savings rate, which is the percentage of disposable personal income saved, standing at 4.1%. This rate is a critical indicator of the financial health and saving habits of the average American.
In a more personalized context, excluding retirement assets, the average American reportedly has $65,100 in personal savings, according to a 2023 study by Northwestern Mutual. This amount reflects the individual efforts of Americans to secure their financial future in an ever-changing economic landscape.
Historically, from 1971 to 2023, interest rates have averaged 5.42%. These rates peaked at an all-time high of 20% in March 1980 and plummeted to a record low of 0.25% in December 2008. The fluctuation of interest rates over the years has played a significant role in shaping saving behaviors and strategies.
Analyzing Average Savings Habits
A survey conducted by DollarGeek in March 2023 revealed that two-thirds (66%) of Americans were able to save money in the past year. This saving ability was primarily facilitated by increased interest rates, which 50% of respondents cited as a contributing factor, and pay increases, mentioned by 35% of the participants.
The uncertain state of the economy has been a significant motivator for many Americans to save. However, saving is just one of the strategies employed to safeguard against economic unpredictability. According to the same 2023 report from Northwestern Mutual, Americans are adopting a three-pronged approach to address economic uncertainties: cutting costs (64% of respondents), building savings (50%), and delaying large expenses (41%). It's evident that households are not relying on a single strategy but are instead employing multiple tactics to ensure financial stability.
Despite these efforts, Americans still face numerous barriers to saving, resulting in a lower overall percentage of income being saved. Data from the St. Louis Federal Reserve indicates that as of April 2023, personal savings accounted for only 4.1% of disposable personal income. This rate is significantly lower than the pandemic highs of 33.8% in April 2020 and 26.3% in March 2021, and even below the savings rate a decade ago, which was 6.2% in April 2013.
The current economic environment, despite offering savings interest rates at a 15-year high, poses challenges for many Americans to fully capitalize on these competitive rates. This situation underscores the complex interplay of economic factors that influence saving habits and the ability of individuals to grow their savings effectively.
Understanding Average Savings Account Balances
In the realm of personal finance, understanding the average savings account balances of Americans offers valuable insights into the nation's economic health. According to the Federal Reserve Board's Survey of Consumer Finances conducted in 2019, the median transaction account balance, which includes savings, checking, money market, call accounts, and prepaid debit cards, stood at $5,300. However, this figure encompasses both saved and spent money, indicating that it may not accurately represent pure savings balances.
In 2022, the national per capita disposable personal income was $55,832, with a personal savings rate of 3.6%. Based on this data, it can be estimated that Americans saved approximately $2,010 per person in that year. This figure, while indicative of some level of financial prudence, also highlights the challenges many face in building substantial savings.
Further data from Northwestern Mutual’s 2023 Financial Planning & Progress Study reveals that the average American’s personal savings, excluding retirement assets, is around $65,100. This amount represents a nearly 5% increase over the $62,000 reported in 2022 but is a decrease from the average savings account balance of $73,000 reported in 2021. These fluctuations reflect the varying economic conditions and the impact they have on individuals' ability to save.
The Role of Interest-Bearing Accounts in Boosting Savings
Interest-bearing accounts, particularly high-yield savings accounts, play a crucial role in enhancing Americans' savings by offering interest on the balances. The recent hikes in interest rates have made these accounts increasingly attractive for those looking to maximize their savings. A survey by DollarGeek in March 2023 found that nearly half (48%) of respondents have opened a high-yield savings account, with 41% of this group doing so to benefit from the interest rate hikes.
However, not everyone is capitalizing on these opportunities. The same survey revealed that 43% of participants have never opened a high-yield savings account. This data suggests a divide in the population, with a significant portion either unaware of or unable to take advantage of these beneficial financial products.
Certificates of Deposit (CDs) are another avenue where competitive interest rates can be found. According to the survey, 44% of respondents have opened a CD, and 31% of this group did so to leverage the rate hikes. Conversely, 41% have never opened a CD, indicating a similar trend of underutilization of available financial tools to boost savings.
Emergency Savings: Preparedness and Challenges
Emergency savings are a critical component of financial security, providing a buffer against unexpected expenses and preventing reliance on loans or credit cards. However, not all Americans are adequately prepared for financial emergencies. The Consumer Financial Protection Bureau’s Making Ends Meet Survey and Consumer Credit Panel from 2022 reported that 24% of Americans don’t have any money saved for emergencies. While 37% have at least a month’s worth of income in emergency savings, 39% have less than this amount.
The importance of setting aside funds for emergencies cannot be overstated, as it significantly impacts overall financial well-being. A positive trend is observed in the Federal Reserve's 2021 report on the economic well-being of U.S. households, which found that the percentage of adults who could cover a small emergency expense using cash increased to 68% in 2021, up from 50% in 2013.
The median emergency savings, as found by the Transamerica Institute in late 2021, was $5,000, with over a third (34%) of Americans reporting saving less. While a few thousand dollars can be helpful in many situations, it may not suffice in the face of multiple or particularly costly emergencies.
Savings Statistics by State
The geographical location of an individual in the United States can significantly impact their saving habits and capabilities. Savings trends vary considerably by state, influenced by factors such as cost of living, income levels, and regional economic conditions. A study by DollarGeek on the best and worst states for saving money sheds light on these disparities.
The study identified the top five most challenging states for saving money as Hawaii, California, Maryland, New York, and New Jersey. These states typically have higher living costs, making it harder for residents to set aside money for savings. Conversely, the best states for saving, including North Dakota, South Dakota, West Virginia, Missouri, and Ohio, offer more favorable conditions for savers, such as lower living expenses and taxes.
Interestingly, the states with the highest average savings account balances are not necessarily those where it is easiest to save. The District of Columbia, Massachusetts, Connecticut, New Jersey, and Washington top the list for the most money saved. In contrast, states like Arkansas, Kentucky, Alabama, West Virginia, and Mississippi have the lowest average savings, indicating a complex relationship between saving capacity and regional economic factors.
Retirement Savings Statistics
Retirement savings are a crucial aspect of financial planning, providing security and stability in later years. As of September 2022, 401(k) plans in the U.S. held a combined $6.3 trillion in assets across 625,000 plans, encompassing millions of participants and retirees. However, not all Americans are equally prepared for retirement. Approximately 28% of non-retired adults have no retirement savings, an increase from 25% in 2021.
Retirement savings are not limited to 401(k) plans. While 54% of non-retired adults have their savings in defined contribution plans like 401(k) or 403(b) plans, 47% have retirement savings outside formal retirement accounts. The Federal Reserve's 2023 survey found that 8% of non-retired adults used their retirement savings for emergencies in 2022, highlighting the challenges many face in maintaining dedicated retirement funds.
The average retirement savings vary by age, reflecting income levels and years in the workforce. Data from Empower in 2022 shows that the average 401(k) account balance across all ages is $118,781, but the median balance is significantly lower at $32,689. The average balance increases with age until the 60 to 65 age group, when many begin to withdraw funds for retirement.
Maximizing Retirement Savings
For those not saving enough for retirement, understanding how to maximize retirement savings is crucial. Starting early is key, as it allows more time for savings to grow through compound interest. For the 28% of non-retired Americans with no retirement savings, beginning to save as soon as possible is vital.
To maximize retirement savings, individuals should:
- Contribute enough to workplace retirement plans to receive employer matching.
- Utilize other tax-deferred accounts like traditional IRAs, Roth IRAs, or HSAs.
- Make catch-up contributions if over age 50 to boost savings.
American Savings Trends
A January 2023 survey by DollarGeek on financial regrets and successes revealed that the most common financial habit Americans planned to adjust in 2023 was tracking spending and creating a budget (43%). Other popular goals included spending below means (40%), paying down debt (37%), and adding to emergency funds (25%).
The survey also found that 56% of Americans who experienced financial regret in 2022 cited not saving more money as a top concern. Conversely, 57% who experienced financial success named increasing their savings as a top achievement.
Current Savings Account Rates and How to Start Saving
Interest rate hikes have encouraged Americans to save more, but savings account rates still vary widely. As of June 20, 2023, national interest rates offer a range of options for savers. To start saving effectively, individuals should focus on paying off high-interest debt, tracking spending, creating a budget, automating savings, planning for large expenses, and taking advantage of high-yield savings accounts.
Conclusion: The State of American Savings
In conclusion, Americans' average savings account balances have shown an upward trend in recent years, but the habit of saving a significant portion of income remains challenging for many. With interest rates at 15-year highs, there are opportunities for more efficient saving, yet individual ability to save depends on various factors like age, location, income, and spending habits. Starting early and utilizing available tools like tax-advantaged accounts and high-yield savings accounts are key to achieving short- and long-term financial goals.
