Banks Can’t Shortchange Savers Forever
Right now, the only way to escape high interest rates is by opening a deposit account to try to benefit from them. But investors shouldn’t assume banks can just keep on snubbing depositors. Though the Federal Reserve has pegged market rates of interest above 5%, getting more than 4% on a savings account is tough.
A handful of banks are there, such as Pittsburgh-based PNC and Goldman Sachs’ online arm Marcus, but the average rate paid in May was 0.73%, data from think tank Center for Financial Stability suggests. Of course, where bank customers lose, investors gain. With most Wall Street megabanks set to report second-quarter earnings next week and their European counterparts a week later, a correct assessment of “deposit betas"—the portion of rate changes that banks pass on to depositors—is crucial.
The CFS figure is very broad and underplays what banks offer new customers. Financial filings suggest that deposits at big lenders such as JPMorgan and Bank of America return between 1.3% and 2%. Moreover, it was normal before 2008 for deposits to yield less than central-bank rates.
Still, today’s gap between the two is unusually wide. The trend in Europe is similar. In the U.K., instant-access deposits paid 1.83% in June even as rates rose to 5%, sparking accusations of profiteering from lawmakers.
In the eurozone, households and companies got a 2.4% and 3% return in May, respectively, while the European Central Bank rate reached 3.5%. But investors who expect this situation to last may be too complacent. During the first quarter, even small increases in deposit costs forced analysts to trim their net interest margin forecasts for U.S.
banks. In Europe, Germany’s Commerzbank warned about a peak in interest margins. The same
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