Investors flock to savings, checking accounts

The average bank account yields less than 1 percent -- or worse than nothing after inflation -- but investors still poured nearly $900 billion into checking and savings deposits over the last year. That's eight times as much money as they put into mutual funds and exchange-traded funds, and it could hamper the economic recovery, new research shows.

True, the S&P 500 went nowhere in 2011, but after including dividends, it still outperformed the average bank account by at least a couple of percentage points. Cash may be trash for long-term investors, but terror of another market crash has chased many them out of securities, hopefully not for good.

In the first 11 months of 2011, investors plowed $889 billion into checking and savings accounts, according to TrimTabs Investment Research. That compares with just $109 billion that flowed into stock and bond mutual funds, and ETFs.

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Inflows into checking and savings accounts peaked in July and August 2011, when Standard & Poor's cut the federal government's credit rating and the eurozone debt crisis rattled markets, notes TrimTabs analyst David Santschi.

"Yet inflows into checking and savings accounts outstripped inflows into stock and bond mutual funds and ETFs in every single month of 2011, including in tax season," Santschi writes.

In other words, the real money is going under the mattress, Santschi says. Some market watchers argue that all that cash sitting in bank accounts represents a fountain of future demand for stocks and bonds. It's so-called "money on the sidelines" or "dry powder."

But until investors actually move that capital back into securities, bloated bank accounts will keep hampering growth, TrimTabs warns.

"As long as most investors keep stuffing most of their money under the mattress, the economy is unlikely to get off to the races anytime soon," Santschi says.