Apparently fearing that the nation's commercial banks are on the brink of a financial crisis, small investors have pulled billions of dollars from their bank accounts, according to information collected for Money magazine's Small Investor Index that was released Monday.
It may be just the beginning of massive withdrawals, according to the magazine.Overall last week, the Index, which tracks the performance of the average individual's investment holdings, dropped by $840 to $41,540. Stocks fell $748, while bonds lost $105. Certificates of deposit and money-market funds gained $24.
Since the first of the year, small investors have withdrawn nearly $50 billion from CDs and money-market deposit accounts at financially troubled savings and loans.
"Some banking experts now see a similar pattern developing at commercial banks, caused by eroding yields and public concern about recent reports of growing losses at the Federal Deposit Insurance Corporation, which insures accounts at the banks," said Money.
The latest data show that interest-bearing deposits at banks, such as money-market deposit and savings accounts, shrank by $400 million in September. But banking experts say that when interest earned on the accounts is included in the total, the amount withdrawn is actually closer to $7 billion.
The outflow from banks is likely to accelerate as more than $130 billion of CDs matures this month, said Money.