The benefits of having money in the bank are now being felt by Americans.
According to recent earnings reports from the top banks in the country, banks are paying back savers’ savings in a significantly bigger way than they have in more than a decade.
The Federal Reserve raised interest rates quickly to fight inflation after a decade of historically low rates, raising the benchmark rate from 4.75% to 5%. Banks have responded by raising the interest rates on conventional savings products, including money market funds, certificates of deposit, and regular savings accounts.
The average yield on a 24-month CD, a popular savings option for medium-term depositors, is currently 4.81%, according to the Federal Reserve Bank of St. Louis.
A year earlier, the yield was 1.18%, thus, this is an increase. Additionally, non-bank brands like Apple are entering the deposit market, giving savers more choices.
Because of the abundance of deposits, banks were initially sluggish to increase their payouts as the Fed hiked rates.
However, these deposits have decreased during the past year due to the forced withdrawal of savings by consumers and businesses due to inflation.
Banks are increasing rewards to maintain existing clients and attract new ones to boost deposits.
Leery of the current volatility in the stock and bond markets, some investors may discover a better deal elsewhere.
After Silicon Valley Bank failed last month, the volatility only worsened. That bank was doomed by a rapid evacuation of deposits, which also caused depositors at other midsize institutions to remove part of their funds, though the withdrawals appear to have stopped for the time being.
Apple Inc., a major manufacturer of electronic devices, introduced a savings account that will provide Apple Card holders a 4.15% interest as a sign of how competitive the market for bank deposits is becoming.
The savings account was created in association with Apple’s consumer banking partner, Goldman Sachs, and offers a higher rate of return than the Marcus brand’s standard deposit rate of 3.90%.
The second-largest bank in the nation, Bank of America, informed investors this week that it was paying clients an average of 1.38% for their deposits, up from 0.96% a year earlier. Because most client cash is kept in checking accounts, which generally offer the lowest interest, that number is still low for BofA.
Wells Fargo, a different financial behemoth whose customers tend to have checking accounts, reports that it pays 1.22% for interest-bearing deposits, up from just 0.04% a year ago.
Because traditional savings and checking accounts are mass-market goods, big banks like BofA and Wells continue to provide lower rates than most banks. However, banks are providing 3.5% for 6-month and 1-year CDs.
Executives at JPMorgan Chase informed investors on April 14 that while the bank saw about $50 billion in deposits flow into it in March following Silicon Valley Bank’s failure, it does not anticipate that all of those deposits will remain with JPMorgan.
Some will probably switch to CDs and money market funds with better yields than other institutions are providing.
In a conference call with analysts, Jeremy Barnum, the bank’s chief financial officer, said: “It’s a competitive market, and it’s entirely possible that people temporarily come to us and then over time decide to go elsewhere.”
According to brokerage behemoth Charles Schwab, a lot of customer money moved into money market accounts in the first quarter as investors looked for yield.