It is natural that people want to save more when interest rates rise. The question is how willing the banks are to provide them.
The Federal Reserve’s most recent rate hike is certainly starting to attract the attention of ultra-low interest rate bankers. The prospect of inflation is likely to make people more satisfied with their cash. A recent survey of about 2,000 US consumers, released Monday by Morgan Stanley analysts, shows inflation concerns are the highest ever in survey history. their. More than 40% of respondents said they would consider opening a new savings account with a 1% rate and more than 60% would consider opening a savings account with a 2% rate. Importantly, 57% of consumers believe opening a new account is “simple and worth the effort,” perhaps reflecting the success of fintech in making the act less painful. than in previous eras.
The initial reaction of some banks may be to ask consumers to use it. Deposits at US commercial banks were about 40% higher than they were this time in 2019, following a pandemic in Fed balance sheet growth and consumer and business savings. Many big banks even have struggling with their sizeface tighter capital constraints and may wish to leave certain deposits, such as those that would not normally lead to other business.
But beyond the temptation to raise interest rates on vehicles like money market funds in addition to bank deposits, the speed at which the Fed shrinks its balance sheet through quantitative tightening could also have a knock-on effect. growth pressure of deposit in the system—Which at some point could spur banks to compete more.
In the most recent data, for the week ending April 27, not adjusted for seasonal patterns, deposits at all commercial banks in the US fell slightly from the week ended April 29. December, according to Fed data. This is in contrast to growth of 4% and 12% in 2021 and 2020 respectively at a similar time of year.
This may soon be reflected in the growing competition for business deposits. While the increase in commercial deposit rates was “modest” after the Fed’s first rate hike in March, “a faster pace of quantitative tightening should promote balanced competition across the system.” ,” according to a note last week by Curinos, which provides data, technology and analytics to financial institutions. They write: “Banks with any deposit flow can ‘lever interest rates sooner'”.
It’s still early in the interest rate cycle, but investors in banks, brokerages and wealth managers should keep an eye on weekly tracking numbers, online savings rates, and even stickers. windows at bank branches are very tight.
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Appeared on 10 May 2022, print edition as ‘Fed Move Sets Deposit Rate Spree.’