Personal Savings Rate Higher on Lower Gas Prices
The personal savings rate, not to be confused with savings account rates, increased again this past January. The report Personal Income and Outlays for January 2015, released by Bureau of Economic Analysts, showed the Personal Savings Rate increased to 5.5 percent in January. The rate is up 0.5 percent since December and up 1.00 percent since November 2014.
U.S. households saved 728.5 billion in January, compared with $659.6 billion in December, almost $70 billion more. The higher personal savings explains why retail sales and economic growth hasn't been as robust as expected, despite lower gas prices.
Only 7 years removed from the Great Recession, the average person is still cautious about spending and rather save their windfall from lower gas prices. Many households, which were overleveraged during the credit binge in the 2000s are still paying down debt.
Also keep in mind, the average savings account rate is still very low at 0.06 percent. The best savings rates available right now are only around 1.00 percent. There isn't much of an incentive to save money as far as earning interest.
Looking at the two charts below, you can see since November there is a direct correlation between lower gas prices and the higher savings rate.
Personal Savings Rate
Gas prices started moving higher again so it will be interesting to see if the personal savings rate declines in February. The recent increase in gas prices probably won't last long. Even if gas prices stay near current levels, the average household is expected to save anywhere between $750 to $1,100 in 2015.
Savings rates, money market rates and CD rates are all expected to increase in the coming years. Higher interest rates combined with low gas prices will probably drive the Personal Savings Rate even higher. We might even see the rate hit double digits again, which was normal back in the 1950s to the 1970s. The rate topped out at 17 percent in May 1975.
You can view the history of the rate going back to 1959 in the chart below.
Banking & Finance InformationPersonal Finance