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What Do Home Sales Have to Do With Your Savings Account?

January 26, 2010

By Andrew Freiburghouse | Money Rates Columnist

Surely one of the lessons that all bank customers should learn from the bank meltdown of the past two years is that in the global economy, links between people--and people's money--are complex and multiplicitous.

The connection between mortgage holders and savers, for example, is a storied one. Banks take deposits from savers and then lend out those deposits in the form of mortgages; that has been the model for a good century now.

This week it was reported that existing home sales declined by 17 percent in December, the largest monthly drop in 40 years.

Anyone who holds a savings account must be at least a little bit concerned about the possibility that the housing market may not pick up anytime soon. Why? Because banks need home prices to stay in the range that they are--otherwise, there are millions of people who may walk away from their mortgages.

Of course this has already been happening, as heavy bank loan losses show, but so far it has not happened on the scale that it probably could if prices drop, say, another 10 percent. Certain areas of the country and certain neighborhoods are definitely holding strong as far as home prices; however, anyone who bought a home circa 2005-2007 has thought or is currently thinking about ditching the mortgage and going back to renting.

Banks suffer if that mentality becomes fully mainstream. Savings accounts are stronger when banks are strong. When looking for savings accounts online, be sure to evaluate the strength of the banks you're considering.

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