Most everywhere you look on Wall Street, interest rates are going up. For everyday savers: not so much.
The two-year U.S. Treasury yield had its biggest one-day jump in more than a decade last week, reaching as high as 1.64%, a level unseen since late 2019 and up from 0.44% at the end of November. The U.S. 10-year yield — a global borrowing benchmark — topped 2% for the first time since August 2019.
In mid-2019, Goldman Sachs Group Inc.’s popular consumer bank Marcus was also offering individuals a yield in excess of 2% to park their cash in a high-yield savings account. At the start of 2020, at which point the Federal Reserve had lowered interest rates three times, it was still promoting a 2% rate on an 11-month, no-penalty certificate of deposit.
The rates are much lower today, even though U.S. yields are back at pre-pandemic levels. Marcus’s savings rate is 0.5%, which it notes on its website is higher than Bank of America Corp.’s 0.04% or JPMorgan Chase & Co.’s 0.02%. While Goldman is in line with other high-yielding peers, like Barclays Plc and Ally Bank, rarely has its average percentage yield fallen so far behind the going rates in the $22.9 trillion U.S. Treasury market.
Online high-yield savings accounts gained popularity in recent years as a straightforward way for regular investors to keep their cash reserves liquid while still generating a return superior to accounts at the biggest U.S. retail banks. Throughout most of the pandemic recovery, ultra-safe options like these have trailed the gains on broad stock-market indexes and other risky assets.
But with the S&P 500 Index down 7.7% so far this year and the tech-heavy Nasdaq 100 losing almost 13%, people may be seeking out ways to protect their money from further losses — especially if the risk-free rates they could earn are on the way up.
However, even with bond traders quickly pushing interest rates higher, experts warn that it’ll be a slower process at banks, even those who have promised their customers “high yields.”
Banks simply aren’t as desperate as they once were for new deposits, said Kevin Caron, portfolio manager for Washington Crossing. Pandemic-era fiscal stimulus pumped so much cash into the financial system that, combined with post-2008 banking regulations, it strained the balance sheets of some of the largest U.S. lenders. Last year, JPMorgan Chief Executive Officer Jamie Dimon said there was a risk it would have to turn away deposits.
That gives institutions like Marcus and other online banks the leverage to keep their interest rates pinned where they are, at least until the Fed actually raises its key short-term benchmark.
“When the Fed does raise short rates, it’s going to put pressure on banks to increase the rates,” Caron said. “But the banks have plenty of deposits, so you might find some lag.”