New Research Reveals Changing Consumer Financial Habits Amid Uncertain Economy
CD Valet, an online marketplace connecting financial institutions with consumers to compare and open Certificates of Deposit (CD) with the most competitive rates and terms nationwide, has launched new research providing a fresh pulse on consumers' financial habits.
Surveying 2,444 American adults, the data reveals that many consumers are adjusting their financial goals due to the possibility of a recession, with 40% monitoring spending more closely and nearly a third (31%) limiting their discretionary spending. Additionally, nearly a quarter (24%) reported putting off purchasing big ticket items. This level of caution also applied to investing, with over 4 in 10 (41%) of adults stating they are more likely to consider a long-term savings investment versus a year ago.
"Consumers are receiving conflicting information about a possible recession, so it's understandable that they're taking caution when it comes to their financial decisions and prioritizing their savings," says Howie Wu, Head of Product and General Manager of CD Valet. "But they shouldn't be confused about the smart and safe savings options they can choose today without leaving money on the table - particularly with interest rates continuing to rise."
Despite the opportunities available, many consumers are not paying attention to savings, especially the returns earned on their bank deposits. CDs, for example, are resurfacing as a smart investment alternative during this period of rising interest rates and economic uncertainty, as they provide a fixed rate of return. In the survey, 39% of Americans said they have never opened a CD nor thought about it/don't know what it is and 31% said they have thought about it, but never acted. It points to the wider trend of "sleepy savers" — people with money at a big bank and earning nominal returns even as interest rates have risen over the last 15 months.
"Consumers can do some simple research and quickly learn if their current financial institution is serving them well from an investment return standpoint. For example, one of the largest U.S. national banks currently offers the rate of 0 .03% APY (Annual Percentage Yield) for a 12-month CD and another major bank pays 0 .01% APY. This is in contrast to the community banks and credit unions offering 12-month CD rates as high as 6.00% APY or more (Source: CD Valet)," added Wu. "This also highlights the need for financial institutions to strengthen their marketing and education around CDs, especially targeted to younger consumers, so they are aware of the options available to them."
The research confirmed that people who have multiple banking relationships tend to be wealthier. Over a quarter (26%) of people with an annual household income of $80,000 or more (above the national median of $70,784) report having relationships with three or more financial institutions (versus 1 or 2 banks from the majority (73%). Additionally, those more likely to consider long-term investments versus a year ago show an affinity for investing options such as CDs and high-yield savings accounts (43% each). Of higher earners who have thought about opening or have opened a CD, these savers prefer shopping for the highest CD rates and best terms available from financial institutions (41%), rather than prioritizing working with their familiar financial institution (16%). However, the majority of banked Americans remain loyal to their primary financial institutions with 64% reporting being with the same primary bank for 6+ years, and almost half (46%) having never changed their primary bank. This inertia is the leading reason why people end up "leaving money on the table" and keeping their deposits in low-yielding CDs or savings accounts.
Other takeaways from the report include:
Retirement may be top of mind — 29% of Americans reported saving as much as they can now for peace of mind later given talks of a coming recession.
Perceptions about financial institutions — Following the bank failures earlier this year, consumers are more likely to consider doing business with smaller community banks (33%), and least likely to engage with internet banks (52%). Financial stability of the institution (95%) is the most important factor when choosing a financial institution.
Personal networks provide most trusted financial advice — While almost 4 in 10 consumers (38%) do seek guidance from expert voices, including financial advisors (25%), well-known financial publications (16%), and well-known financial experts (12%), 45% of consumers get advice from those they have relationships with such as close family (25%), parents (19%), friends (16%), extended family (10%), and work colleagues (6%). Just 1% reported that they get advice from "finfluencers."