The word for the day in banking is “liquidity,” so several top credit card lenders offer savings accounts to increase deposits.  With large swaths of customer relationships, well-designed strategies to spawn deposits can expand the cardholder relationship and improve bank liquidity through increased deposits. The FDIC states, “Liquidity reflects a financial institution’s ability to fund assets and meet financial obligations. It is essential to meet customer withdrawals, compensate for balance sheet fluctuations, and provide funds for growth.”  In other words, financial institutions must stand ready to attend to their customer withdrawals by having cash on hand, often held in consumer savings accounts. The latest numbers compiled by the Federal Deposit Insurance Corporation indicate that the national Deposit Rate for a savings account is a mere 0.42%, with a rate cap of 5.83% for insured financial institutions.  Javelin says to increase liquidity, target deposits with high-yield savings.  And branch banks need to be more effective in addressing the issue.  However, online banks have found the key. The Mainstream, Top Tier Bank is Behind the Curve for Savings Rates If you check the savings deposit interest rate for Chase, a top branch-based bank, you will find savings rates closer to 0.01% in Tampa, FL.  Savers in Bronxville, NY, will see the exact standard pricing for savings the same at Bank of America.  And the reported rate for a Wells Fargo savings account in Chicago falls at the higher end of the spectrum, at 0.15%.  A Citi gold saver in San Jose will find a standard interest rate of 0.12%. Regional Banks Will Not Give Much More Regions Bank will pay the same 0.01% to a Tampa resident as Chase, and that Bronxville, NY resident will find a tad more at TD Bank, at 0.02%.  The windy-city saver in Chicago will find the same paltry 0.10 rate at BMO Harris, though if they use the online bank instead, they will find much more.  In San Jose, at Zions Bank, you will find a 0.16% rate at Zions. But If You Want to See Great Rates, Look at Online Banks Tied to Credit Cards A recent trend by credit card banks is to offer high-yield savings accounts.  You might not find a branch bank on every street corner, but these institutions have mastered the art of fast money movement, ACH, and direct deposit. A Discover Online Savings Account will pay you a whopping 4.30%.  At Capital One, you will find a high-yield rate of 4.3%, with American Express High Yield Savings running slightly behind at 4.15% What’s a Banker to Do? Online banks can be more efficient than brick and motor banks.  According to Experian, you will find lower fees, better interest rates, and access to a vast network of ATMs.  Branch banking has steadily declined since 2011, when there were 85,511 branch banks in the U.S., versus 71,190 in 2022.

Consumers need to focus more on the 400 or so basis point difference between branch banks rather than the ability to stand in line at a teller. But for better liquidity and improving deposits, the thing to do is to compete on the savings rate. Overview by Brian Riley, Director of Credit /Co-Head of Payments at Javelin Strategy & Research.

By Brian Riley
Aug 08, 2023 00:00
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