In the current volatile economic environment, consumers are shifting their money from higher-risk investment accounts into more conservative savings and non-interest checking accounts, according to the quarterly Market Audit from Nielsen Claritas. Based on findings in the 4th quarter of 2008, the Market Audit, a comprehensive assessment of the financial products being used, the opportunity exists for financial institutions to attract new customers and retain existing ones by offering low-risk accounts such as fixed interest savings accounts, variable interest money market accounts and CDs, together with non-interest checking accounts. Although these vehicles provide only modest rates of return, consumers are able to maintain liquidity while they wait for their investment accounts to bounce back.
“If the overall worth of IRA and 401K accounts continues to decrease, perhaps there is an opportunity for financial institutions to place more of an emphasis on CDs as a way to help consumers save with some guaranteed interest rate during these trying financial times,” said Jane Crossan, Vice President, Practice Leader for Nielsen Claritas.
- Non-interest checking accounts grew in 2008 where the head of household was over 35 years of age. However, average balances for non-interest checking accounts were down across all age groups.
- More households had a savings account in 2008 than at the end of 2007—and the type of savings vehicle was driven by the age of the head of household.
— Older households had the ability to keep higher balances for money market accounts or were able to commit some of their savings to CDs.
— The younger households kept their savings liquid in fixed-interest savings accounts.
- Money market account penetration decreased year-over-year driven largely by the under age 35 households.
- Fixed interest savings accounts increased for all three age groups, which include under 35, 35-54 and over 55
- The number of households with an IRA and 401K increased, but average balances plummeted for all age groups.
Credit, Loans and Investments
Along with the ability to take advantage of money market and CD accounts, the older the head of household, the more likely they are to have an outstanding non-mortgage credit balance of over $10,000. That level significantly increased for households in the 35-54 and 55+ age groups.
Personal loans also increased since the end of 2007 in the form of home equity loans, student loans and other unsecured personal loans. Penetration of revolving debt accounts, such as credit card debt, decreased which indicates that people were closing their credit card accounts. All the major credit card brands, including Visa®, MasterCard®, Discover® and American Express® showed a decrease in penetration from 2007 to 2008. However, average outstanding credit card balances were on the rise, indicating that households are not reducing the debt they have, but consolidating it to fewer cards.
Investments, including mutual funds, stocks, bonds and cash value insurance accounts all fell from Q4 2007. The only investment account to increase in penetration was the tax-advantaged college plans (529 Educational Plan).