The economy continues improving, but here’s one thing that’s not: what banks pay ordinary savers for their deposits.
Since the financial crisis, the Federal Reserve has raised short-term interest rates five times, including last month. But for regular savers, those higher rates have barely budged what banks pay in deposit interest – and bankers don’t appear in any rush to change that.
According to data for the last three months of 2017, Bank of America paid the same amount – .01 percent on average – for U.S. savings accounts that it did when the Fed started raising rates in 2015. Wells Fargo customers also got the same amount on average – .07 percent – for certain savings accounts as they did two years ago. Meanwhile, both banks have raised the interest they charge to customers for credit cards and some other types of loans.
Executives at both banks, in conference calls with analysts this month, said they aren’t feeling any pressure to boost the interest paid to mom-and-pop savers, noting that their competitors are also keeping rates steady.
“At some point, rates are going to rise,” Bank of America Chief Financial Officer Paul Donofrio told analysts on the bank’s fourth-quarter earnings call Wednesday. “My guess is we’re getting close to that point given the expected Fed ... rate hikes here in 2018.” Bank of America will balance what its competitors do with the needs of its customers and shareholders’ interests, he added.
Wells Fargo, like its competitors, hasn’t made changes to what it pays on consumer and small-business deposit accounts, executives said on their earnings call last week. Chief Financial Officer John Shrewsberry said Wells doesn’t need to attract many additional deposits to fund its current loan demand.
But banks might have to pay depositors more if loan demand picks up because of last month’s federal tax overhaul, which slashed the corporate tax rate, Shrewsberry said. That’s because they might need to attract more deposits in order to make more loans, he said.
For corporations and wealthier clients, it’s been a much different story. Bank executives said they have passed on the benefits of rising interest rates to those customers, paying them more for their money.
Bank of America CEO Brian Moynihan noted that depositors with millions in a wealth management account see that money as an investment and will move it to a competitor if they can get a better rate. In contrast, more traditional retail customers are using the money in their accounts mostly for household expenses.
As banks wait to pay Main Street savers more, those firms’ profits are getting a lift from charging higher interest on loans. Since the Fed began raising rates, executives at both Bank of America and Wells Fargo have noted how that’s helped their bottom lines.
And even though banks are withholding higher payouts to depositors, executives are quick to point out that they offer customers value in other ways. Bank of America’s Donofrio, for example, listed benefits such as mobile banking capabilities and the bank’s nationwide locations.
Wells Fargo CEO Tim Sloan made a similar observation.
“It’s not just about deposit pricing,” Sloan said. “We’re providing real value to all of our customers because of the massive increase in innovation, and we’re going to continue to do that. So, we’re not just competing on price.”