When interest rates are slashed to record lows, it’s meant to encourage people to take a few more risks with their finances.

But the latest figures on what consumers are doing with their savings must have made frustrating reading for Reserve Bank governor Glenn Stevens.

On the one hand, there are many of us who are stubbornly keeping our money in the bank because we’re still cautious.

But at the same time, there’s a big group who are intent on doing the exact thing that Stevens would prefer we’d cool off on: putting money into property.

The latest consumer sentiment report from Westpac and the Melbourne Institute published last week, included a question on where is the “wisest” place to put savings.

Despite puny interest rates that mean the returns on a deposit account are going backwards after inflation, some 34.3 per cent of people nominated the bank as the “wisest” place to put savings, the highest in almost two years.

On face value, that suggests households remain deeply cautious. But it’s not that simple. The other place where Australians are increasingly keen to put their savings is property, favoured by 25.7 per cent of respondents.

Shares, in contrast, are still only the preferred choice for 8.5 per cent of people.

CommSec reports that with 60 per cent of consumers either preferring banks or property, it’s the most polarised result for savings intentions in 20 years.

Why is this a problem? Well for one, the high priority given to savings accounts suggests many remain deeply cautious about the economy.

With unemployment still high at 6.1 per cent, slow wage growth and job insecurity, it seems many people are still reluctant to spend more, which is likely to keep growth sedate.

At the same time, however, it also shows the surging interest in the property market. Despite double-digit house price growth, and despite Stevens’ warnings that prices can fall as well as rise, one in four consumers still view property as a winner.

This is significant because it highlights the bind facing Stevens.

The economy remains weak, as a record-breaking mining boom goes into reverse, and other businesses struggle to fill the gap. But to solve that problem with even lower interest rates would be a risky move indeed.

As the governor spelled out earlier this month, pumping any more cheap credit is not the answer to Australia’s economic weakness. It would only risk further inflating “already elevated” house prices – something he last month said would be an “unwise” thing to do.

Lower interest rates have undoubtedly helped the economy – but they are not going to solve its problems and could also create new risks, if the housing market continues its bumper run.

Posted by Clancy Yeates – The Age on 17th September, 2014