By: Daryl Tolliver
All eyes are currently on the impending fiscal cliff as lawmakers continue to discuss potential tax changes and cuts that may undoubtedly affect the rates most Americans pay. In response potential tax hikes and cuts, many consumers are trying to prepare themselves and protect their assets by reevaluating their current financial standing and moving funds around to shield themselves from these changes.
For example, many bank consultants are encouraging financial institutions to brace themselves for an influx of customers who seek to convert their existing traditional IRA accounts to a Roth, according to Time Magazine. This is largely because these taxpayers may anticipate higher rates in the future and are seeking to take advantage of 2012's more favorable tax rates.
Studies show that consumers are largely hesitant to make significant investments in riskier stocks and equities as well. Current capital gains rates are expected to increase from 15 percent to 20 percent, or from zero to 10 percent for low-income earners. Taxes on dividend income is also expected to surge to a top rate of 39.6 percent next year, compared to the current 15 percent rate. As a result, many investors who are focused more on longevity and protecting their assets - rather than wealth-building - may shift toward more conventional products. These include certificates of deposit, money markets and other lower-risk investments.
How will consumers bank next year?
As already evidenced by a significant exodus from large national banks to smaller community institutions and credit unions, many analysts say this trend will continue as consumers seek more value. Tax rate hikes are likely to heavily impact middle-class families who may be more focused on saving their money and getting the most value for their transactions. For this reason, community banks and credit unions may be in a good position to gain even more traction and a bigger market share with consumers who find value in reward checking, reasonable service fees and cash-back programs.
Customer satisfaction studies show that consumers typically migrate toward institutions that provide more transparency, which may largely account for one of the reasons community banks and credit unions have seen membership climb to their highest levels in recent years.