Consumers are borrowing less and saving more, according to the Federal Reserve.
That news is not necessarily as good as it sounds. Many people have stopped borrowing because they’ve lost their jobs or already borrowed all they can.
But there does seem to be a growing culture of thrift. Consumer borrowing, not including mortgages, fell a stunning $21.6 billion in June, the largest drop in more than 60 years.
The drop was wide-ranging, involving credit card debt and loans for cars and many other purposes.
Assuming this leaves at least some people with extra cash in their wallets, what’s the best thing to do with it?
Most experts would suggest first building up a rainy-day fund. That’s especially important at a time of poor job security. As a rule of thumb, this fund should be large enough to cover expenses for six to 12 months, long enough to bridge the gap between the last paycheck from the old job and the first check from the new one.
Of course, the fund could be needed for a new roof, medical expenses or any other emergency even if you don’t lose your job.
A rainy-day fund should be “liquid,” or easy to get at, which means you won’t earn much interest. Money market accounts average a paltry 0.428%, according to the BankingMyWay.com survey, while savings accounts average 0.223% and checking accounts just 0.136%.
You can do better by shopping around.