As part of figuring out what new and used car buyers are doing on today’s auto market, and what they can do to save money, it’s a good idea to look at the context of the overall consumer spending. A closer look at the spending patterns of American households shows that worries about the economy have many of us holding onto cash rather than buying on credit. A new story from the L.A. Times estimates that American consumers are saving to the tune of 10 trillion dollars, a lot of cash by any standard. But L.A. Times writers take this a few steps further, looking into how banks are responding to this new change in how customers are handling their personal finances.
You’d think saving would be a good thing, but according to the L.A. Times article, this knee-jerk reaction by individual households to a range of financial threats isn’t good for banks. The story shows banks figuring out more ways to make more money for their core business by actually imposing disincentives and hardships on those who seek to develop their nest eggs. One of the main tools that banks have is to drastically reduce already low interest rates on savings. These days, it’s hard to get any significant money in the form of interest when banks hold your money. Just a few years ago, banks offered rates of over 5% for many certificate of deposit accounts. Now, these rates are usually lower than 1%, and for regular savings accounts, can be down to as little as .10% or less.
Another major weapon in the bank’s arsenal is the service fee: the L.A. Times is reporting that some banks, like the Bank of New York Mellon, are actually charging customers fees for depositing too much cash. Granted, this is for large corporate accounts rather than household savings accounts, but the precedent has been set, and with banks desperate to add revenue streams, nearly any kind of fee is probably on the table.
So along with our usual advice to make the most of any new or used car financing deal, take a moment to think about how to get the most out of savings, as well. One creative “double play” here would be the use of savings for a high down payment on a car or other vehicle. This moves savings from a bank account, which is vulnerable to the kinds of manipulations mentioned above, into the form of a physical asset. The key here is to correctly insure the vehicle, and keep it in good condition, and this kind of strategy isn’t for everyone, but it’s likely that as banks and customers continue to engage in a tug-of-war over dollars, many will need to get more creative about how to use money to their advantage.