The Shift to Thrift

"We definitely see some movement toward conservatism," said Michael B. Lee, senior vice president of retail banking for Paramus- based Hudson City Savings Bank, where deposits grew by 33 percent to $24.7 billion. The boost included $3.12 billion in certificates of deposit, $2.34 billion in money-market checking accounts and a $575.5 million increase in interest-bearing checking and savings accounts. "People are still not ready to jump into the equity market," Lee said. Hudson City was offering one-year certificates of deposit this month with a yield of 1.45 percent. Its money market checking account yield was 1.25 percent with a $25,000 minimum balance, and small balance interest-bearing checking and savings accounts yielded 0.75 percent. The average yield nationwide on a one-year certificate of deposit last week was 0.73 percent, according to bankrate.com. Meanwhile, Newark-based Prudential Financial Inc. saw its fortunes lifted last year by a surge in sales of very conservative retirement savings products: variable annuities designed to mitigate market risk and provide guaranteed amounts of income in the golden years, regardless of how financial markets perform. Fourth-quarter gross individual annuity sales more than doubled to $4.8 billion, from $2.2 billion in the year-earlier period. "Clients' appetite for risk has decreased," said Stephanie Sherman, a Prudential financial planner in East Hanover. Those who had invested in variable annuities before the market crashed were "happy customers," she said. The downside for these products is low rates of return, high fees and early withdrawal penalties, says Karl Graf, an investment advisor in Wayne. He recently put more of his own money "on the sidelines," in a money market account, as he investigates new investment opportunities. "I rode out the up and down of the stock market, which wasn't easy," he said. As his shares recouped a portion of their losses in recent months, he sold some to reduce his exposure. "The climate for stocks will be dismal for a couple years," he said. "I think they have to get cheaper and we're still dealing with fundamental economic problems." Shares on the S&P 500 index trade at a price-to-earnings ratio of 18.4, according to Bloomberg News, above the five-year average of 16.59.

Graf is looking to diversify by investing in bargain-priced commercial real estate for rental income and potential equity gains. "You can create some very good cash flow and appreciation," he said. "And it does help with diversification." Some signs have appeared that consumers are getting a bit more optimistic. According to the trade group Investment Company Institute, $16.34 billion flowed into stock funds in January, the first net inflow in five months and the largest increase since May. But Lee at Hudson City said "it's too early to tell" whether deposits there are filtering back into stocks. "February was a very solid growth month in deposits," he said. To be sure, bankers say not all their deposit growth was because of a new frugality. Some of it came from people moving money from big institutions to smaller ones amid bank failures including Washington Mutual and acquisitions such as TD Bank's purchase of Commerce Bank. "We gained customers who ran away from Wamu and Wachovia and to a lesser extent TD when it bought Commerce," said Michael A. DeBernardi, chief operating officer at Washington Township-based Oritani Savings Bank, which increased its deposits by nearly 37 percent in 2009. Not all New Jerseyans are able to set more cash aside because many are trying to cope with declines in household income. "Ours is probably down close to 10 percent," said Deborah Ryen, an attorney who lives in Ridgewood. Everyone at the information technology consulting firm where her husband works took salary and bonus cuts last year to avoid layoffs, she said. "We're saving a little bit less," she said. In a report released Thursday, household wealth in the U.S. grew in the fourth quarter at a slower pace, limited by a drop in home values and indicating a recovery in consumer spending will take time to develop. Chris LaBarbiera, an accountant from Ridgewood, said that while he has not changed his buying habits, he is saving less and spending more. "The same cut of meat that was $5.99 a pound is now $6.99," he said. He expects to make less money this year because "customers are cutting back," he said. Optimism that the employment picture will brighten any time soon is in short supply, especially among older workers, said Randy Neumann, a financial planner in Paramus. He has two clients, men in their 50s, who recently lost their jobs. One worked for a clothing importer and one for a media conglomerate. Both men are looking for ways to avoid paying large early withdrawal penalties on their 401(k) accounts. "They believe they are probably never going back to work," Neumann said. E-mail: newman@northjersey.com {CAPTION1} RAINY DAY {CREDIT1} GRAPHIC - LANCE THEROUX AND BILLY BECERRA/STAFF ARTISTS {IMAGENAME1} NO IMAGENAME (c) 2010 Record, The; Bergen County, N.J.. Provided by ProQuest LLC. All rights Reserved. // var ranNum = Math.round(Math.random()*1000000); document.write('http://content.yellowbrix.com/images/content/cimage.nsp?ctype=full_story&story_id=145990727&id=thirdage&ip_id=ProQuest&source_id=Record%2C+The%3B+Bergen+County%2C+N.J.&category=Banking&random=' + (ranNum));// ]]>//