After Stall, Consumers’ Banking Power Back on Track

NEW YORK (MainStreet) – As 2012 begins, consumers’ banking power appears to be back on the right track.

We’re not talking about the customer uprising that killed the Bank of America debit card fee. Rather, the gap between loan rates and deposit rates is once again shrinking, suggesting that the balance of power is slowly but surely tipping back in favor of the consumer.

For almost a year now, MainStreet has tracked the Credit Power Index, a metric that measures consumers’ banking power at the nation’s banks and credit unions by comparing the interest banks charge on loans to the interest they offer on deposits. The lower the index, the more banking power consumers have. (See our graphic for a full explanation of how the index is calculated.)

The good news is that that the index has dropped in the most recent month measured, December 2011. Using historical data gathered by RateWatch, we can see that the Credit Power Index spiked at the height of the recession as deposit rates plummeted. But even as rates of return on savings accounts and certificates of deposits dwindled, falling loan rates helped close the gap for consumers. During the course of 2011, the index fell by 1.25 points, a slow but steady improvement.

That steadiness took a hit in late summer 2011, when the Fed’s decision to keep rates low through mid-2013 sent mid- and long-term CD rates tumbling. But as of the end of December, the improvement seems to be back on track, with the index falling six basis points on the month to settle at a national average of 22.49.

Another considerable decline in loan rates is at work here. While personal unsecured loans and home equity loans stayed more or less steady for the month, the average rate on a 48-month new auto loan fell eight basis points to settle at a historic low of just 4.3%. Keep in mind that this only for banks and credit unions, and doesn’t account for the much lower auto loan rates found at carmakers’ captive financing companies, which means the actual going rate for an auto loan is even lower than this.

Home loan rates likewise fell in December. Five-year adjustable-rate mortgages, which represent the home loan component of the index, fell by four basis points for the month. That jibes with what we’re seeing in the home loan market as a whole: The latest weekly report from Freddie Mac found the average on 30-year fixed mortgages is inching downwards to yet another historic low, 3.88%.