Across JPMorgan Chase & Co.’s broad suite of consumer accounts, one number is just about everywhere: 0.01%.
That’s the interest rate on Chase Sapphire, Chase Premier Plus and Chase Private Client checking accounts, regardless if someone deposits $5 or $500,000. The same is true for Chase savings accounts, according to a fact sheet as of April 12. Those afforded “relationship rates” get a whopping ... 0.02%.
On that same day, JPMorgan reported that its net interest income — the difference between what it earned on loans versus what it paid on deposits — fell in the first quarter from the last three months of 2023, the first sequential drop in 11 periods. Shares tumbled by the most since June 2020.
The largest US bank was hardly alone: Wells Fargo & Co. also reported NII that missed analysts’ estimates. Both banks cited increased pressure to pay out more for deposits, which offset the benefit of higher interest rates earned on loans.
It all points to a trend that has been bubbling beneath the surface since the Federal Reserve began raising interest rates, but has only more recently been reaching Wall Street’s bottom line: Americans are getting wise with their cash.
Perhaps nowhere is this more stark than in certificates of deposit, which lock up cash for a set period of time — and often offer much higher rates as a result. US commercial banks held $2.26 trillion of large CDs (defined as $100,000 or more) on their books as of the end of 2023, Fed data show. That was up $615 billion from a year earlier, the sharpest annual increase on record.
Wells Fargo said last week that its non-interest-paying deposits slumped 18% from a year earlier, while those that do pay interest climbed.
“We’re continuing to see that migration in some of the businesses, particularly in consumer,” Chief Financial Officer Mike Santomassimo said.
‘Dominant Trend’
At JPMorgan, CFO Jeremy Barnum said migration of deposits from checking and savings to CDs is the “dominant trend.”
“We really don’t think it makes sense to assume that in a world where checking and savings is paying effectively zero, and the policy rate is about 5%, that you’re not going to see ongoing migration,” Barnum said during the bank’s first-quarter earnings call. The firm works to capture that “money in motion,” he added.
US banks initially benefited from the rapid pace of rate hikes because they could make loans that pay higher interest, boosting their lending income. They were slower to raise payments to depositors, causing their NII to soar last year.
Another option for Americans is to eschew banks altogether.
Some money market funds, which don’t have the same lockup provisions as CDs, are offering yields of about 5%. The amount of cash in these vehicles soared by more than $1 trillion in 2023, the biggest jump ever, according to Investment Company Institute data.
That alternative — easier than ever to make with a few taps of a smartphone — is another reason banks are forced to compete on rates. While less pressing for behemoths like JPMorgan and Bank of America Corp., it could strain regional lenders.
Financial technology firms are also a threat to banks, luring away consumers’ deposits by boasting of savings rates more than 10 times higher than the national average. LendingClub Corp. and Betterment offer high-yield savings accounts with rates as high as 5%, and SoFi Technologies Inc.’s rates are about 4.6%.
Bank of America, for its part, doesn’t see massive changes in how deposits are structured from what’s currently in money markets, savings and checking accounts, Chief Executive Officer Brian Moynihan said on an analyst call discussing first-quarter results.
“It’s really slowed down and been relatively stable,” he said.
But with the Fed keeping rates higher for longer, depositors have even more time to find higher-yielding options for their money. And with the two-year Treasury yield topping 5% this week, banks may have to start boosting CD rates yet again, after coming into the year expecting to be able to cut.
“In a world where we’ve got something like $900 billion of deposits paying effectively zero, relatively small changes in the product level reprice can change the NII run rate by a lot,” Barnum said.
This article was provided by Bloomberg News.