NEW YORK–Under the headline, “The $42 Billion Question: Why Aren’t Americans Ditching Big Banks?,” the Wall Street Journal offered various analysts’ thoughts on why more Americans aren’t moving their deposits to higher-paying institutions and continue to settle for “peanuts.”
“In theory, savers could have earned $42 billion more in interest in the third quarter if they moved their money out of the five largest U.S. banks by deposits to the five highest-yield savings accounts—none of which are offered by the big banks,” the Journal reported, citing an analysis done by S&P Global Market Intelligence. “The reality is complicated. The five banks collectively made far less than $42 billion in profit in the third quarter. And if savers were to move their money en masse, banks offering high-yield accounts could lower their rates.”
The report found the five banks—Bank of America, Citigroup, JPMorgan Chase, U.S. Bancorp and Wells Fargo, paid an average of 0.4% interest on consumer deposits in savings and money-market accounts during the quarter, according to S&P Global. The five highest-yielding savings accounts paid an average of 2.14% during the same period, according to data from Bankrate.com, the Journal reported.
Hold Nearly Half of Deposits
The report noted the five banks collectively hold about half of all the money kept at U.S. commercial banks in savings and money-market accounts tracked by the FDIC, a share that has held steady despite the availability of higher rates elsewhere.
“The $42 billion gap in the third quarter was the largest amount since record-keeping began, but will likely be dwarfed in the fourth quarter because top high-yield savings accounts have raised their interest rates to more than 3.5%,” the analysis continued. “Since the start of 2019, Americans have lost out on at least $291 billion in interest by keeping their savings in the five biggest banks. That total balloons to $603 billion when going back to 2014, when the FDIC started tracking consumer deposits in money-market and other savings accounts.
Why Not Move?
Why haven’t savers moved more of their money? Gary Zimmerman, CEO of MaxMyInterest, a company that specializes in helping customers move deposits between the nation’s highest-yielding savings accounts, told the Journal, “Opening a new bank account is time consuming…People don’t think critically about financial decisions.”
Similar to credit unions, the Journal pointed out big banks also serve a lot of depositors with small accounts who may not see the value in making the switch, observing that a depositor with $1,000 in a typical big-bank savings account would have earned just $20 more for the year by switching to one of the top high-yield savings accounts.
A Trade-Off
People also are willing to pay for convenience and simplicity.
“If you can retain customers without having to pay for them, that’s the name of the game,” Nathan Stovall, a principal analyst for financial sector data at S&P Global Market Intelligence, told the Journal. “You want to attract as many low-cost, stable customers as possible.”
Stovall did write earlier this year that he expects large banks to increase their savings rates more quickly through the end of 2022 and increase even further in 2023 as the Fed continues to raise U.S. interest rates and banks compete more aggressively for customers.
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