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Год выпуска: April 24, 2023
Автор: Bloomberg Businessweek Europe
Жанр: Бизнес
Издательство: «Bloomberg Businessweek USA»
Формат: PDF (журнал на английском языке)
Качество: OCR
Количество страниц: 68
Can We Have a Little 4% Interest... ...asa Treat?
Big banks still pay skimpy rates to savers, but FDIC-insured high-yield accounts are getting hotter
It wasn’t too long ago that many personal finance discussions were dominated by such burning questions as: Can I juice my retirement by betting on the stock of a mall video game store? How about digital pictures of apes? Well, things have changed.
Л surge in interest rates has popped the bubbles in especially speculative corners of financial markets. But a major side effect of the new financial regime is a focus on an investment many of us may have forgotten to view as an investment at all: boring old bank savings accounts, some of which now pay yields of more than 4% after years of offering rates that round down to zero.
One of the US Federal Reserve’s most aggressive campaigns ever to fight inflation with higher borrowing costs has created a refreshing opportunity for both businesses and consumers. At the same time, it's creating a fresh set of headaches for the banking executives who suddenly find themselves in a heated competition to expand-or at least maintain-their share of the nation’s $18 trillion worth of bank deposits.
Collecting deposits used to be easy. The total increased steadily at an average rate of about 5% each year in the decade through 2019. And then deposits ballooned 23% in 2020 and an additional 10% in 2021 as stimulus money flowed, Americans were stuck at home with fewer opportunities to spend and companies loaded up on debt to build up cash to ride out uncharted economic waters. But that set up banks for a whiplash: The amount of money on deposit suddenly shrank 1.5% last year-the first decline since the 1940s, according to data from the Federal Deposit Insurance Corp. And more shrinkage could be in store in 2023, as those bloated savings accounts get drawn down and some savers move their cash to money-market mutual funds, which can be nimbler than banks in raising rates. Money-market funds don’t have FDIC insurance but generally invest in very short-term, low-risk securities.
So the buzzword flying around the executive suites of the nation’s banks these days is “stickiness.” In other words, exactly how attached are depositors to their banks, especially the ones that have yet to raise yields on their savings accounts? In many cases it may require more than a toaster to keep them on board. (Note to you kids under 50: Yes, back in the days of limits on the interest banks could pay, they used to entice depositors with free appliances.)
Jamie Dimon, JPMorgan Chase & Co.’s chief executive officer, gave some hints about how he gauges the stickiness of deposits during his company's earnings call on April 14. For example, he said, many regional banks deal with smaller companies both as depositors and as borrowers, and those customers are less likely to go shopping for a better deposit rate. “If 1 lend you $30 million and you have $10 million, you’re probably going to be leaving it at my bank,” he said. “You shouldn’t be looking at deposits like one class. There is a whole bunch of different types. And analytically, you go through each one and try to figure out what the stickiness is.”
A similar dynamic is likely at play at Dimon’s own bank, even for individual depositors. If a customer has, say, checking, savings, credit card and investment accounts all with the same bank, it creates a certain amount of inertia in the relationship. Just think of what a pain in the neck it is to change all those automated withdrawals that pay the bills. Despite its barely-there interest rates-Chase, like its competitor Bank of America Corp., pays as little as 0.01% on basic savings deposits-the bank was able to defy expectations of a drop in deposits in the first quarter. In fact, deposits grew 2%, helped no doubt by a whiff of panic that some smaller, less systemically important banks could face the type of run that broke Silicon Valley Bank in early March, when depositors got scared about that bank’s bond losses. (It turned out that tech startup executives who constantly talk to one another on group chats were not as sticky as SVB executives had hoped.)
It’s a different situation at a company like Charles Schwab Corp. Although it’s primarily known as a brokerage, ever since Schwab led the race to commission-free trading in 2019, its business model much more closely resembles that of a traditional bank. Cash that isn’t being invested by clients is swept into Schwab’s bank unit. Customers get paid a 0.45% rate on that money, which the company invests in securities or loans yielding more than that. In an era of low interest rates, customers didn’t complain much about getting paid less than half a percentage point. But when rates rise, they may feel less inertia: Schwab clients have a variety of higher-yielding optiors-from money-market funds to Treasury securities-that are just a few clicks away, including on Schwab’s own site. Customer deposits in its bank slid 11% in the first three months of the year.
While the turmoil unleashed by the collapse of Silicon Valley Bank seems to have calmed down lately, the competition for deposits is likely to continue, particularly from online “high-yield” savings accounts. Bankrate.com lists annual percentage yields as high as 5-02%, with almost two dozen other banks sporting yields above 4%. This month, Apple Inc. introduced a 4.15%account with Goldman Sachs Group Inc. that would be available via the Wallet app in its phones-potentially knocking another brick out of the wall of inertia protecting traditional banks and adding pressure to raise rates among institutions paying less generous yields. The gap between the average deposit rate and the federal funds rate (what banks earn just by lending money to one another overnight) is at a modern high of above 2 percentage points, according to researchers at the Federal Reserve Bank of New York. “Hence, banks are facing significant competition for savers from other vehicles that offer rates closer to the fed funds rate, such as money market mutual funds,” the researchers wrote on the Liberty Street Economics blog, adding that they expect deposits to continue to move around as a result.
For many consumers and businesses in the US, it may be time to consider breaking up with your bank-for either a money-market fund or another bank offering a more attractive rate on savings accounts or certificates of deposit. Or you may find it makes sense to work with one bank for your regular bill-paying, checking and cash needs, and the occasional visit with a teller, while pushing the excess into a betterpaying online account that’s a bit less convenient. For those with more than $250,000 in savings-the limit on deposits backstopped by the FDIC-it’s a trickier decision that may require spreading the cash across a few different accounts if you want it all to be insured.
Of course, it’s true that even the FDIC’s finances may become strained in a nightmare scenario where more banks follow the path of Silicon Valley Bank. But despite the current mosh pit nature of US politics, there’s too much to lose on both sides of the aisle if the FDIC fails to meet its obligations. So those insured deposits still seem like a safe bet-at least a lot safer than meme stocks and ape NFTs.
Bad ‘For You’
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Robbing Venezuela
- How a plan to recover billions lost in allegedly rigged oil bidding fell apart
Smart Guns, Dumb Country
- Biofire has made a safer handgun—whether anyone wants it is another matter
IN BRIEF
- Fox & fines
- Violence in Sudan
- ChatGPT vs. red tape
OPINION
- The World Bank and IMF need a refresh
AGENDA
- Big Tech earnings
- Trans-Atlantic GDP
- NFL draft
REMARKS
- Where's the action? Yes, your savings account
BUSINESS
- PepsiCo's new weapon in the (un)cola wars
- VW faces a slow road back to the top in China
- Will Wolf of Wall Street NFTs have any bite with fans?
TECHNOLOGY
- Meet your new therapist: Dr. Chatbot
- Moldova, Ukraine’s tiny neighbor, is under cyberattack
- Do the robocars know the way to San Jose?
FINANCE
- The life of a 'epo man is back to intense
- Using buy now, pay later apps for bacon and eggs
- In Indiana, the smallest US bank gets by on no fees
ECONOMICS
- The sun shires on solar in Texas—but for how long?
- Erdogan's hold on voters may be slipping
- Garment factory safety a decade after Rana Plaza
PURSUITS
- A new class of spa is here to cure your burnout
- The favorite cameras of today's online influencers
- End tables that start conversations
- Dining out on top of the world, at the Centurion New York
- Bring that high-end laser beauty treatment home
LAST THING
скачать журнал: Bloomberg Businessweek (April 24, 2023)
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