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U.S. Personal Savings Increases Dramatically in December 2012

The U.S. personal savings rate, not to be confused with savings rates, jumped considerably higher in December 2012. The personal saving rate was 6.5 percent in December, up from 4.1 percent in November 2012. In dollar terms that translates into $805.2 billion saved in December 2012, compared with $495.0 billion in November 2012.

Seeing a jump this large, you would think that the nation saving more had to do with an increase in savings account rates but that isn't the case. The best savings rates were just above 1.00 percent in both November and December of last year. The increase was the result of higher personal income due to the anticipation of higher tax rates in 2013.

In the U.S. Department of Commerce "Personal Income and Outlays"  for December 2012, the increase in personal income was "boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments."

Since personal income increased in the final month of 2012, savings increased as a result. The increase in the personal savings rate to 6.5 percent is a multi-year high. The last time the personal savings rate was this high was back during the financial crisis and "Great Recession" when the rate averaged 6.7 percent in May 2009.

This increase will be short-lived and probably will decline again in January 2013 because savings rates are so low. With the highest savings rates around 1.00 percent, you barely keep up with the pace of inflation - in fact, you're falling behind the rate of inflation.

Unfortunately, there are really no alternatives that keep your principal 100 percent safe like a savings account does. You could invest in U.S. Treasuries, but 1 year bond yields at 0.15 percent are pathetic, plus you risk losing some of your principal if you don't hold the bonds until maturity.
Author: Lisa Graham
February 12th, 2013