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Despite high inflation, households haven’t yet depleted their pandemic-related savings

During the COVID-19 pandemic, households accumulated significant savings, beyond the typical amount in a given year: In 2019, the personal saving rate* in the US averaged 8.8%. In 2020, it had almost doubled to 16.8%.

These additional savings were driven by two factors: a higher propensity to save and higher disposable income.

The first factor was the choice made by households to spend less, which could be due to a combination of health concerns, pandemic restrictions, and the prospects of lower future income, among others. (An earlier FRED Blog post offers more on this topic.) The second factor was the transfer payments from the federal government that generated a substantial increase in income for many households. Research by the Federal Reserve Board found that, from the first quarter of 2020 to the first quarter of 2021, about 40% of excess savings stemmed from a higher propensity to save and 60% stemmed from fiscal support that increased incomes.

The FRED graph above applies the Board analysis to show the trend rate of savings prior to the COVID-19 pandemic. Knowing where the trend line is allows us to depict excess savings, which is measured as the difference between actual savings (blue line) and trend savings (red dashed line). To measure accumulated savings, we add these differences each quarter through the third quarter of 2021. This calculation implies that households accumulated about $2.3 trillion in savings in excess of the pre-COVID savings trend.

Since the fourth quarter of 2021, the blue line has been below the red dashed line, which signifies a rundown in excess savings of around $1.3 trillion. It also suggests that, as of the first quarter of 2023, households still had excess savings of about $1 trillion. However, as Board researchers have noted, this growth and decline in excess savings has not been uniform across the income distribution, as most of the remaining excess savings is being held by the top of the income distribution. This trend is consistent with other analysis, such as the San Francisco Fed’s recent research and the Bank of America’s analysis of their internal data showing steeper declines in account balances of lower-income households, although balances for all income groups is above pre-pandemic levels.

*From the Bureau of Economic Analysis: Personal saving as a percentage of disposable personal income (DPI), frequently referred to as “the personal saving rate,” is calculated as the ratio of personal saving to DPI. Personal saving is equal to personal income less personal outlays and personal taxes; it may generally be viewed as the portion of personal income that is used either to provide funds to capital markets or to invest in real assets such as residences.

How this graph was created: Search FRED for “personal saving” (PSAVE is the series ID). Limit the dates using the upper right date boxes to “2014-10-01” to present. Next, click on the “Edit Graph” button and use the “Add Line” tab’s “Create line” button. Here, change the starting value to 882.159 and the ending value to 1735.176. This is the pre-pandemic trend line, estimated by a linear regression that is not included in FRED. Next, use the “Format” tab to change the style of Line 2 to “Dashed.”

Suggested by Charles Gascon.

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