Investors are going short with their cash

A combination of low interest rates on long-term investments and investor aversion to risk has led consumers to avoid tying up their cash for any length of time. According to an analysis of the Federal Reserve's most recent Flow of Funds report by consulting firm Moebs $ervices Inc., consumers are steering clear of certificates of deposit and money market mutual funds. Instead, they are funneling the funds into shorter-term investments such as checking accounts and money market deposit accounts. “The basic retail investor is kind of being thrown into a conservative position,” said Michael Moebs, economist and chief executive at Moebs. The low rate on longer-term CDs is being driven in part by bank efforts to reduce long-term deposits to raise capital-to-asset ratios, he said.  Retail and jumbo CDs fell to 22.4% of total deposits last year, from 31.7% in 2007. Likewise, all types of money market mutual fund deposits fell to 23% of total deposits last year, from 26.2% in 2007. Meanwhile, checking account deposits increased to 7.7% of deposits last year, from 5.2% in 2007, and money market deposit accounts rose to 43.9%, from 33.5% in 2007. The total of insured and uninsured deposits dropped $800 million, to $12.3 trillion at the end of last year, from $13.1 trillion in 2007, an effect of the recession and reduced earnings by workers, Mr. Moebs said. Of note, the shift in the types of deposits has seen $1.48 trillion go into money market deposit accounts — and out of the stable types of deposits that banks use for lending. That, in turn, has caused banks to cut bank on their loan portfolios, according to Mr. Moebs. Some of the cash that once went into market mutual funds and CDs probably is being invested in stocks and bonds, he said, adding that the sharp increase in money market deposit accounts suggests that many investors are taking a wait-and-see-approach to the stock market. E-mail Lavonne Kuykendall at [email protected].