Bank Watch

Why Bank of America and other banks aren’t paying you more for your deposits

Last month marked the third time the Federal Reserve has raised interest rates since the financial crisis, but Bank of America still hasn’t passed on those increases to many of its customers.
Last month marked the third time the Federal Reserve has raised interest rates since the financial crisis, but Bank of America still hasn’t passed on those increases to many of its customers. Getty Images

Bank of America customers looking for the Charlotte company to start paying savers more in interest will have to keep waiting.

Last month marked the third time the Federal Reserve has raised interest rates since the financial crisis, but Bank of America still hasn’t passed on those increases to many of its customers. Bank of America is also paying some consumers less interest on certain products, like certificates of deposit, than before the Fed started lifting rates in 2015, according to disclosures the bank made Tuesday in reporting its first-quarter financial results for 2017.

Bank of America is not the only bank holding back – its large competitors have barely nudged their interest payouts, too. But with the interest they charge borrowers, it’s a different story. When the Fed hikes rates, banks have been known to boost interest for borrowers within minutes.

During a presentation Tuesday on Bank of America’s financial results, Chief Financial Officer Paul Donofrio said competition remains a key consideration as the bank determines interest paid to savers.

“We’re very focused on the competitive environment, we’re focused on the needs and wants of our clients, and we’re balancing all of that against what our shareholders would want us to do,” Donofrio said.

The comments came on the same day Bank of America impressed some analysts with its performance in the quarter, during which profits rose 40 percent. Here are takeaways from the results:

Rate outlook unclear

Executives did not specify Tuesday how much more interest the bank will pay on certain products if the Fed enacts more rate hikes this year.

“I think the question is how low should we be, and we’re just going to have to wait and see,” Donofrio said.

During the first three months of the year, Bank of America savers earned on average 0.01 percent on U.S. savings accounts and 0.05 percent on money market deposit accounts. Those rates were unchanged from the last three months of 2015, when the Fed made its first increase since the crisis.

Also in the first quarter, Bank of America paid 0.27 percent on consumer CDs and individual retirement accounts. That was down from 0.29 percent in the last quarter of 2015.

But the bank increased the average interest charged on borrowers for some products over the same period. For example, rates on U.S. credit cards rose to 9.55 percent from 9.15 percent.

Industry experts note banks have been slow to raise interest payouts in part as they try to improve their profits following years of low rates that have constrained their profitability. Some banks are also seeking to recoup expensive investments they’ve made in recent years in mobile technology and cybersecurity, experts say.

While low rates have been crushing to savers, they’ve been good for borrowers, many of whom have taken advantage of them to refinance homes in recent years.

Results draw praise

Bank of America’s first-quarter report won praise from analysts and shareholders, who view the results as evidence the bank continues to improve its footing after years of being dogged by costly crisis-era litigation. Now that billions of dollars in settlements are behind the bank, investors are looking for it to improve its profitability.

On Tuesday, Bank of America said it grew revenues 7 percent, to $22 billion, from the same period last year. Results included a record $5 billion in revenue in its global banking segment, which provides lending and other services to a range of clients such as large global corporations.

Profit across the company increased to $4.9 billion, or 41 cents a share, from $3.5 billion, or 28 cents, a year earlier. That beat the 35-cent average estimate of 27 analysts surveyed by Bloomberg.

CEO Brian Moynihan, who has led the bank since 2010, called the results another “solid example” of his strategy for “responsible growth” at Bank of America. The bank has said that strategy includes doing more business with existing customers rather than acquiring customers through, for example, buying a mortgage originated by another company.

But banking analyst Glenn Schorr questioned executives Tuesday on how the responsible growth approach will affect their ability to deal with falling loan growth in the industry.

“As we watch ... loan growth come down for a bunch of different reasons, can BofA continue on this path?” Schorr said. “Can it buck the trend of the declining loan growth that we’re seeing in most other places?”

In response, Moynihan said Bank of America has managed to grow loans at a faster pace than the U.S. economy’s annual growth rate of about 1.5 to 2 percent. But he said the bank will “be dependent upon the economy to keep growing.”

“At the end of the day, banks reflect the economy,” Moynihan said.

Expenses still top focus

Moynihan, who has spent his tenure chopping away at expenses and streamlining a bank that grew unwieldy after decades of acquisitions, continues to pursue a previously announced plan to lower annual noninterest expenses to $53 billion by the end of 2018.

Asked by an analyst Tuesday where the bank will cut next to meet the goal, Moynihan said the bank is looking “everywhere” including employment, which “generally is drifting down.”

Bank of America has 208,573 employees, a decrease of more than 75,000 since when Moynihan took over. The bank added 549 employees in the first quarter compared with the fourth quarter of last year. But it shed 4,610 from a year ago.

Reiterating a previously disclosed strategy, Moynihan said the bank is reducing the number of people in management roles, while increasing personnel who work directly with clients as the company looks to reduce layers.

The bank is also continuing to shrink its real estate footprint by consolidating employees spread across multiple buildings, Moynihan said. The company is also accelerating a process of consolidating data centers, he said, noting that cost-cutting continues across the bank through an ongoing program dubbed Simplify and Improve.

“It’s everywhere we turn,” he said. “Every place we look, just keep working at the pieces.”

Deon Roberts: 704-358-5248, @DeonERoberts