Americans are hoarding cash: Savings rate hits its highest level since 1981

New York(CNN Business) Americans are so nervous about the state of the economy that they are stashing cash in the bank at a rate not seen since the first year of Ronald Reagan's presidency.

The United States government's Bureau of Economic Analysis reported Thursday morning that the savings rate surged to 13.1% in March -- up from 8% in February.

That's the highest savings rate since November 1981. Americans had $2.17 trillion in savings last month.

Consumers are putting more money away at a time when bank savings, money market accounts and Treasury bonds are yielding next to nothing after the Federal Reserve slashed rates to zero last month and launched numerous lending programs in the wake of the Covid-19 pandemic.

At a press conference on Wednesday, Fed chair Jerome Powell was asked about what savers should do since rates are at zero. He conceded that for people "really just relying on their bank savings account earnings, you're not going to benefit from low interest rates."

"But we have to look out for the overall economy. Low interest rates support employment, they support economic activity. And those are our mandates," he added.

The lack of interest income isn't deterring people from saving more even though many Americans are getting smaller paychecks.

The government also said Thursday that personal income fell 2% in March "due to the response to the spread of COVID-19, as governments issued 'stay-at-home' orders." This was led by a staggering $327.6 billion drop in workers' salaries and bonuses.

Another 3.8 million people filed for unemployment benefits last week, bringing the total to 30 million since mid-March. This is the worst contraction in the US economy since the Great Recession of 2008.

Incomes are down -- but so is spending

Still, consumers may be saving more because they are spending less -- a lot less, in fact.

The BEA also said Thursday that consumption expenditures fell 7.5% last month, led by a nearly $935 billion drop in spending on goods and services. Much of that is probably due to the widespread closure of businesses.

Americans spent less on non-essential medical care, leisure and recreation and autos. The one notable area where spending went up? Food and beverages consumed at home.

The savings rate briefly soared to a peak of 12% in December 2012 at the height of the fiscal cliff crisis -- when federal tax cuts were set to expire and automatic government spending cuts were due to kick in. But it then plunged back to 5.8% in early 2013 after a budget deal was reached.

Since then, the savings rate has slowly but surely crept back up. One economist theorized that perhaps Americans were preparing for an inevitable downturn.

"The savings rate had risen dramatically in the last couple years already," said Robert Frick, corporate economist with Navy Federal Credit Union in a tweet.

"Speculation is people were bracing for the next recession. I don't look for silver linings, but the more people bank, the better the recovery," he added.