Credit-card debt is hurting Americans’ capacity to stash away money for a rainy day.
More than one-third of Americans say their credit-card debt is larger than their emergency savings, at 36%, up from 22% last year, according to a poll released on Thursday by Bankrate.com.
This year’s figure is a record in the survey’s 12-year history.
Saving for an emergency has proved to be a challenge in a time of high inflation and rising interest rates. Nearly four in 10 survey participants (39%) say they either have less money in emergency savings compared with a year ago or have none at all. Last year, 34% said that was the case.
It’s another sign of the debt and financial stress that millions of Americans are coping with in a “less-than-optimal” economy, said Mark Hamrick, a senior economic analyst at Bankrate. “Many have resorted to tapping their emergency savings if they have it, or have taken on credit card debt, or some combination,” he said in a statement.
One-quarter of Americans say they would have to use credit cards to cover a $1,000 expense, Bankrate’s survey found. That’s up from 20% a year ago. “With one in four Americans telling us they would react to a large emergency expense by using a credit card, their timing couldn’t be worse,” Hamrick said.
Credit-card debt increases
Americans added $61 billion to their credit-card balances during the fourth quarter, according to figures released last week by the Federal Reserve Bank of New York. Consumers held a total of $986 billion in credit-card debt, which now exceeds pre-pandemic levels.
New offers for credit-card annual percentage rates, or APRs, averaged 19.94% as of late February, according to Bankrate’s analysis.
Meanwhile, personal savings rates are also under pressure. Although households tucked away 3.4% of their after-tax disposable income in December, up from 2.9% in the prior month, savings had fallen late last year to the second-lowest level on record, going back to 1959, according to the Commerce Department’s Bureau of Economic Analysis.
In January, the inflation rate was 6.4%, cooling slightly from 6.5% a month earlier and significantly below the 9.1% peak rate recorded in June.
One upside: With high interest rates, it’s a good time to reap rewards from savings accounts and other places to park cash. The annual percentage yields for online high-yield savings accounts are now averaging 3.3%, and some accounts offer rates of up to 4.5%, according to DepositAccounts.com.
Next year, employers will be able to offer emergency savings accounts alongside the retirement savings accounts they provide for workers. This was part of the year-end spending bill Congress passed in December.
But next year is a long way off, especially with the Federal Reserve signaling that it may push benchmark interest rates still higher.
