“The gray faces behind the bulletproof glass at your local bank are beaming,” writes Ian McDonald in today’s Wall Street Journal.

“And who could blame them? After three years of jarring stock losses and ongoing layoffs, the cash sitting in plain old savings accounts totaled more than $2.7 trillion last month, up more than $490 billion, or 22%, from just a year ago according to the Federal Reserve. Investors are taking a crash-course in old-school saving, bracing from everything from a burst boiler to joblessness to Armageddon.”

“We’re routinely (and rightly) told to save more, and many of us are embracing the sensible idea that we should always have a few months worth of expenses on hand in case of an emergency. But the trend may be ominous for Wall Street, and a saving spree can also weigh on our portfolios if we get carried away.”

” ‘People are just putting their money in the bank,’ says Charles Biderman, President of liquidity tracker TrimTabs.com. ‘During good times people worry about return on their investment and in bad times they worry about return of their investment.’ “

“Many of us are choosing to plunk money into FDIC-insured savings accounts over retail money-market funds, which aren’t insured by the FDIC and have seen their assets slip 8% since Jan. 1 according to fund-industry trade group the Investment Company Institute. Both offer low yields of around 1% on average, trailing inflation.”

“Battered stock funds are in net redemptions by about $19 billion through the first three quarters of this year. Bond funds are taking in fresh cash each month, but their net inflows pale next to savings accounts’ bounty.”

“Keeping money on hand might give us peace of mind, but it should lead investors and fund-company execs to reach for a stiff drink. By choosing low-yielding savings accounts over low-yielding money-market funds, from which we can easily exchange into stocks or stock funds, many on Main St. have taken a decisive step away from financial markets.”

“Tumbling interest rates have left about 70 mostly small money funds offering a 0.5% yield or less, according to money-fund tracker iMoneyNet of Westborough, Mass. The shift away from money-market funds could continue if slipping rates lead more funds’ to offer yields south of 1%.”

” ‘These are the lowest yields in the 31-year history of money funds,’ says iMoneyNet vice president Peter Crane. ‘The real risk is that individual investors will leave en masse. That would be a major blow because brokerages and mutual funds might have a hard time getting them back.’ “