Why Households with Low-interest Savings Hold Expensive Debt

John Gathergood, Arna Olafsson

Research output: Other contributionNet publication - Internet publicationCommunication


Households’ tendency to hold liquid savings at low interest rates and, at the same time, revolving debt at high interest rates is a long-standing puzzle in household finance. This pattern of behaviour has been observed across many countries, on a variety of revolving credit products including credit cards and overdrafts. Using increasingly available transaction-level data sourced from financial services providers, this column shows that co-holding is often short-lived, and may be best explained by consumers keeping separate ‘savings’ and ‘debt’ accounts earmarked for different forms of expenditures, a form of mental accounting.
Original languageEnglish
Publication date4 Jul 2021
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Publication statusPublished - 4 Jul 2021

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