The swift failures of Silicon Valley Bank and Signature Bank this month have prompted hard looks at the health of banks and caused many people to pull their money out of smaller banks and park it in bigger ones.
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But even before the crisis — which is hopefully subsiding — more retail banking customers said they were already pulling cash from their primary bank accounts, according to new information from J.D. Power.
While inflation grinds away at account balances, rising interest rates have lured customers to take more of their money out of lower-yielding accounts, the consumer markets analytics company said in its yearly banking satisfaction survey released Thursday.
Nearly one-third of people, 30%, said they had moved savings account money during the past three months from a primary account to another provider, according to consumer survey field work conducted approximately two weeks ago. On average that outbound sum was about 40% of the balance, said Paul McAdam, J.D. Power’s senior director, banking.
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During March 2022, 27% said they had moved savings out of their account. That was an average of 35% of the account, either going to unspecified destinations or just being spent.
The share of bank customers with at least $10,000 in their primary bank has dropped to 28%, down from 44% the previous year, J.D. Power noted.
Considering how difficult it is for many people to break up with the bank they’ve been using, that’s a testament to inflation’s toll and the pull of higher APYs, or better returns from conservative cash equivalents like a money market mutual fund.
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The money-moving habit continued this month even as wide majorities of consumers said they were confident their money would be available for withdrawal if needed, according to McAdam.
In the same recent survey asking about savings on the move, 93% of bank customers said they were very or somewhat confident in their bank and their ability to withdraw money, McAdam said. “We’re not seeing a freak-out situation,” he said, later adding, “Your typical consumer is trusting the system is what this is saying.”
The Federal Deposit Insurance Corporation covers deposits up to $250,000, but said Silicon Valley Bank and Signature Bank depositors would have access to all of their money, even beyond the $250,000 cap.
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McAdam notes the banking survey is only one look at consumer mood. Regular bank users might not have the same worries about deposit status as business owners, for example. Two-thirds of people say they have at least some confidence in big, national banks and smaller, regional banks, according to a YouGov poll.
People are getting wise to the better rates that are out there –- though there are surely people who don’t realize they could be reaping more interest.
The same day as the J.D. Power survey, a Barclays note anticipated a “second wave” of deposit outflows to money market funds after “deposit rate inattentiveness.”
The annualized seven-day yield on the biggest money market funds is now 4.57%, according to Crane Data, which follows the money market fund industry.
During the series of Federal Reserve rate hikes, the APYs on high-yield savings accounts have been exceeding the rates from traditional brick-and-mortar banks.
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The average APY across a national swath of banks is now 0.23%, according to Bankrate.com. Online high yield savings accounts have a 3.5% average APY now, according to DepositAccounts.com.Inflation’s price
When people pull money from their account, it’s difficult to discern how many are doing it in order to take advantage of better rates elsewhere and how many are doing it because they need more money to cover more expensive prices, McAdam said.
The share of accounts with less than $1,000 in deposit balances has climbed to 30% from 17% last year, the J.D. Power survey said.
Inflation has dragged Americans’ personal savings rates down from pandemic highs, when they were buoyed by stimulus checks and fewer places to spend money in a locked-down world. In January, the savings rate after taxes and expenses was 4.7%, according to the Commerce Department’s Bureau of Economic Analysis. That’s up from 3.4% in October but down from 7.5% in December 2021.
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“The pandemic-driven savings boost is gone, it’s wiped out. … Our data ties into that,” McAdam said.
On Friday morning, consumers, investors and policy makers will have another look at inflation rates and their slow descent from four-decade highs. The Fed-preferred measure of inflation is expected to show a 0.6% increase from January to February, and a 5.4% increase year over year, according to economists polled by the Wall Street Journal.
