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The Silicon Valley bank crisis has hurt stocks and will almost certainly curb lending and economic growth this year. But it seems to translate into an advantage for consumers: higher bank savings rates.
Analysts say that with some nervous depositors shifting their money from regional banks to the big ones, at least some banks are raising savings account rates and deposit rates to incentivize clients to stay put or to attract fresh money to replenish reserves.
says Ken Tomine, founder of the company DepositAccounts.com, which tracks bank savings and CD rates. He says banks want to “support their deposits to reduce the risk of being hurt by a bank run.”
He says some online banks, in particular, have increased deposit rates because it makes it easier for their customers to move money to competitors.
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Ally Bank Tommen said he raised his 11-month penalty-free CD rate from 4% to 4.75% on Saturday, March 11, just after the Silicon Valley bank failed. Both the big jump and the timing of the weekend move were unusual and may have been designed to “reduce deposit outflows from volatile clients,” he wrote in his book. website.
The higher rate means an additional $138 in interest over an 11-month period on a $20,000 deposit.
Ally Bank did not respond to an email seeking comment.
Rather than stop losing money, one analyst says, some banks may simply be trying to grab a share of the deposits bouncing back through the banking system.
says Gary Zimmerman, founder MaxMyInterest.coma platform that allows consumers to move money between banks that pay the highest rates.
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Why was the Silicon Valley bank collapsed?
The Silicon Valley bank collapsed when concerns about its financial health led customers whose deposits were uninsured — because they had exceeded the FDIC’s $250,000 limit — to shift their money to larger banks with more stable assets. Banks rely on deposits to make loans.
A similar collapse brought down Signature Bank of New York, threatened First Republic Bank and prompted many depositors across the country to modify their deposits. To contain the crisis and prevent outflows from other banks, federal regulators have stepped in to help ensure uninsured depositors have access to their money.
During the week that Silicon Valley and Signature failed, regional and smaller banks lost a record $119 billion in deposits while the 25 largest banks gained $67 billion in deposits, according to a JPMorgan analysis of Fed data released Friday.
It can be difficult to isolate the impact of the crisis on savings rates because bank interest rates were already rising so dramatically last year that the Fed raised its key short-term interest rate by 4.75 percentage points to fight inflation — its boldest campaign since World War II. Early eighties.
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Do banks raise interest rates on savings accounts?
While most physical banks with branches raised savings rates slightly to 0.35% because they were overwhelmed with deposits, online banks were more aggressive. The average online savings rate is 3.52%, up from 0.49% a year ago, and the average one-year CD online rate is 4.56%, up from 0.67% a year ago, according to DepositAccounts.com.
The pace of the rate increase accelerated after the Silicon Valley crisis first made headlines on March 8, Tommen says. The average online savings rate increased by 22 basis points to 3.74% from March 1 to March 24, compared to an increase of 4 basis points from January 1 to February 1, and an increase of 17 basis points from February 1 to March 1.
However, the Fed has been slowing its interest rate increases from half a percentage point in December to a quarter point each in early February and last week. Tommen notes that this suggests that the recent increase in bank interest rates is at least in part a by-product of the Silicon Valley crisis and its ripple effects.
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Banks with savings accounts have higher returns
Although the rise in average interest rates was modest, some banks pushed interest rates further.
Phoenix based Western alliance, a regional bank whose shares slumped in mid-March during the Silicon Valley fallout before recently recovering, the high-yield savings account rate tripled from March 14 to March 22. The rate rose from 4.45% to 4.75%, according to DepositAccounts.com.
The Western alliance declined to comment.
Main Street Bank of Fairfax, Virginia, offered a 15-month penalty-free CD at 5% on March 14, but the small bank was planning to roll out the product before the Silicon Valley crisis, says CEO Jeff Dick. He says the bank’s deposits have grown, rather than shrunk, in the wake of Silicon Valley’s woes.
He added, however, that MainStreet was only planning to offer the CD for three weeks. With many customers having transferred their deposits since the crisis, we’ll “keep it there now” for a week or two. “I definitely want to have more pillow.”
Some analysts see no connection between the banking crisis and higher savings rates or CDs.
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says Greg McBride, chief financial analyst, Inc Bankrate.com.
Some banks also refuse to point out that the Silicon Valley crisis drove up their rates.
On March 17, Citizens Access, the online unit for Citizens Bank In Providence, Rhode Island, it raised the online savings rate from 3.75% to 4.25%, but bank officials say the move was planned before Silicon Valley’s troubles.
“We are always looking for ways to deliver value, through innovative products and solutions, as well as trusted advice,” the company said in a statement.
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