A sign of the economy - Nervous Americans want easy access to their cash

From the Associated Press:
Nervous Americans want easy access to their cash

By Pallavi Gogoi

NEW YORK — Americans want to be close to their cash.

People are bailing out of bank certificates of deposit and parking their cash in checking and savings accounts that earn little or no interest but also don't exact penalties for early withdrawal.

It's another signal of how nervous Americans are about their finances as the U.S. economy struggles. Consumers are stuck with few options to make their money work. The Standard & Poor's 500 is down 0.5 percent for the year, one big reason why people have pulled a net $145.3 billion out of mutual funds in the first eight months of the year, according to Lipper Inc.

Why? "At times of uncertainty, there is a natural human tendency to stay liquid and have money easily accessible," says Dan Geller, executive vice president at financial data analysis firm Market Rates Insight.

A CD commonly carries an interest rate for a fixed term ranging from three months to five years. Depositors typically pay a penalty if they withdraw their money prior to the end of the CD's term.

"Interest rates on short-term instruments like CDs are so low, why bother when you can leave money in the bank?" says Martin Feldstein, professor of economics at Harvard University.

This is not a stand-alone phenomenon: As American households spend less, chances of higher economic activity and a healthy recovery continues to diminish. It's no surprise that overall deposits in U.S. banks fell for two consecutive quarters for the first time in two decades.

Read the full article and make up your mind whether you want to stay in certificates of deposit.

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