Your sudden spike in savings may not last forever.

By Lauren Phillips
February 05, 2021

Last March, when the spread of coronavirus led to a series of local and state-wide shutdowns, business closures, and more, most people hunkered down at home and minimized their interactions with others—and data shows that they minimized their spending, too. If you were suddenly hit by the desire to spend less money and boost your savings these last months, either out of a lack of opportunities to spend money or concern about your future finances, you certainly weren't the only one.

In April 2020, the U.S. personal savings rate surged to 33.7 percent, according to data from the Federal Reserve Bank of St. Louis and the U.S. Bureau of Economic Analysis. That's the percentage of national personal disposable income people saved in any given month. The rate pre-pandemic, in December 2019, was 7.2 percent, and the rate has hovered around 6 or 7 percent since January 2013. Traditional budgeting advice says to aim to save 20 percent of your income: For the national savings rate to surge above that rate (even briefly) for the first time in modern history is huge.

Obviously, that spike in savings happened despite the millions of people who experienced a layoff or furlough who were unlikely to be able to save money, but it's still there, meaning many, many people who didn't experience a substantial loss of income were able to save a large amount of money.

That spike in savings drops after April, but it's still substantially higher than it was in the last several years—the rate for December 2020 was 13.7 percent, still 5 percentage points above where it used to be. Sure, the savings rate is higher than it's been in a long time, but economic recovery is still uncertain and the end of the pandemic may still be months (or more) from now, so it's unclear whether this positive shift in savings habits will stick around.

"The dramatic surge in savings during the pandemic created a kind of savings bubble that was bound to peak," says Anand Talwar, a deposits and consumer strategy executive at Ally Bank. "Some consumers nationwide have begun drawing on the cushions they started accumulating in April and May."

Talwar says Ally's data has shown spending increase and saving decrease for the last few months, but that some people may have a long-term shift in spending and saving habits.

"When consumers feel or see risk, they change their behaviors and stockpile or change their spending habits," he says. "We saw some really dramatic changes in certain kind of things when the pandemic first started. For some folks, behavior might be forever changed."

If you suddenly found yourself saving more money than usual in 2020, be proud of yourself for saving money (and acknowledge that you're fortunate to have been able to do so)—but don't count on that newfound ability to save more money to stick around, unless you make conscious changes to your lifestyle.

At least some of the sudden increase in savings is due to lack of opportunity, according to Mike Kinane, head of consumer deposits, products, and payments at TD Bank. "You can't even spend money the way you could a year ago," he says. "Consumers really didn't choose [to save]."

Think about it: Many of the items you likely used to spend money on—think travel, meals at restaurants, concert or show tickets, and nice clothes for work, among many others—aren't necessary, available, or safe to spend on right now.

"As we get through the vaccine [and] start to see consumers being able to get back to normal, I do think we're going to see a bit of a return to normal," Kinane says. "There will be a pent-up demand for sure." Meaning, people will be more than ready to spend again.

When COVID-19 cases in your area fall and enough people are fully vaccinated against the virus, things will begin to return to normal (or close to it)—and you may face the same spending temptations you used to fall for. To maintain any positive spending habits you've been able to develop in the last few months, start practicing your budgeting and impulse control now, so when you can go back to your favorite vacation destination or that high-end restaurant down the street, you'll be ready to moderate your spending so you can keep moving toward your financial goals. This pandemic and economic crisis has taught us many things, but one is the importance of having an emergency fund to see you through the unexpected—don't let yourself forget the lesson, even once this crisis is over.