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Wow! "Platinum Honors Tier status" at BofA... Now that's really something!
The Federal Reserve has raised interest rates to their highest level since early 2008. Yet the biggest commercial banks are still paying peanuts to savers. 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—according to a Wall Street Journal analysis of S&P Global Market Intelligence data.
The five banks—Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co.—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. These 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 Federal Deposit Insurance Corp. That share 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%.
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.
And U.S. savers have likely missed out on much more than $600 billion because the average rate the five biggest banks have paid over the past eight years, 0.24%, includes higher-yielding money-market accounts and some business accounts. Traditional savings accounts paid an average rate of 0.02% at the five largest banks during that period.
Why haven’t savers moved more of their money? Some customers aren’t aware of how much money they could make by switching, and others just don’t care. Alicia Gillum has been with Bank of America for 26 years and says she has no interest in searching for a new bank, even though her savings of more than $100,000 is earning almost no interest. Her loyalty has earned her Platinum Honors Tier status, which affords her a 0.04% interest rate on her savings instead of the 0.01% rate the bank pays to customers of its basic savings accounts.
Americans flush with stimulus payments and enhanced unemployment checks flooded U.S. banks with deposits earlier in the pandemic. The biggest banks got an outsize share of those deposits. About $425 billion flowed into money-market and savings accounts at U.S. commercial banks between the first quarter of 2020 and the third quarter of 2022, according to the FDIC. More than 95% of that went to the five largest banks.
But things could be changing. The average rate on money-market and savings accounts at the five largest banks nearly tripled in the third quarter from where it was in the second. And people are starting to move their money around in other ways to take advantage of higher rates, pouring a record amount into higher-yielding savings vehicles such as Series I savings bonds and Treasury bills this year.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
Trippled, wow. BofA's base savings account rate went up from 0.01% all the way up to ... 0.1%. WSJ is correct; Platinum Honors will quadruple that, to 0.04%.
https://www.bankofamerica.com/deposits/savings/savings-accounts/
Platinum Honors at BofA does have merit, but that's not to be found in its savings rates. Rather in its credit card rebates, where one can get as much as 5.25% cash back for keeping $100K in BofA or Merrill (formerly Merrill Edge).
As to why people don't change banks, bank accounts are very sticky. For some it's because they've been using the same bill payment/checking system for a long time and it's an effort to move. For some it's the hassle of changing direct deposits. For some its physical proximity or ubiquity, especially with large banks that surcharge for foreign ATMs. For a few it may be safe deposit boxes (which are free with Platinum Honors, but relatively few BofA branches still have boxes).
I have a brick-&-mortar bank a couple of blocks away where I have some (low-rate) walk-in $s + bank locker. A/C is linked to a fund company, so $s can be shifted easily (it did give me a hard time in setting that ACH link; kept saying to just use Zelle, which I do). Relationship is handy for free signature guarantees & alternate access to quick cash - when once my ATM Card (from Schwab) got locked.
In today's world where a fully FDIC protected bank account + ACH transfer can be opened and done within minutes on the phone it boggles the mind. Buying CD's/Treasuries within brokerage account is even more easier.
Savings + CD rate arbitrage over 20+ years starts adding up, it isn't chump change.
Banks are betting many people do not want to make changes. Even money market funds from your brokerages are paying a lot more than their saving accounts, but I forget that many folks use their banks for investing.
Over 15 years the differential between online bank rates and the measly rate I get from my Big 4 bank has been pretty significant.
I was able to effectively withdraw from dealing with Chase by having First Republic, another bank, generate two automatic scheduled monthly withdrawal transfers from Chase to First Republic, for an amount equal to the monthly retirement deposits. Now we deal only with First Republic, allowing Chase (who has a large branch one short block away from us) to retain only a few thousand dollar residual amount.
First Republic has a branch two blocks away, and walking the extra block is well worth while. They have also electronically linked us with our Schwab Bank account, allowing instant and easy transfers to our Schwab Brokerage account. All done via the internet, with no problems. The Schwab Bank/Brokerage also happens to be just a block away, so if any problems with transfers should occur, there are actual human beings very close to us to work with.
Screw JP Morgan Chase.
They had many branches close to my home, their personnel were friendly, and customer service was great.
Under Kerry Killinger in the 90s, WaMu expanded from 84 branches in 1991 to 248 in 1995.
The following decade Washington Mutual became the country's largest savings-and-loan bank
and also the largest mortgage originator. Subprime loans accounted for some of this rapid growth.
When the subprime lending crisis culminated, the Office of Thrift Management seized the bank on 09/25/2008.
Washington Mutual was sold to JPMorgan Chase hours later. This was the largest bank failure in U.S. history.
I was not pleased with JPMorgan Chase.
They were much more "corporate" than WaMu.
Their lobbies felt sterile and their associates were impersonal.
I switched to a local credit union in 2010 and haven't looked back.
Most of my banking is conducted online with other financial institutions
but it's nice to have an option with a nearby physical presence.
When a medallion signature guarantee was needed to transfer my Roth IRA a few years ago,
the credit union provided a convenient avenue to obtain this guarantee.
Can't fault the lobby- it's pretty much unchanged. But- yes, they are much more "corporate" than WaMu... and their associates are impersonal and downright snotty.
To repeat- Screw JP Morgan Chase.
That's more what I want out of a bank. To each their own.