As Americans seek higher returns on their savings, deposits are pouring into institutions better known for credit cards than bank accounts.
In Q1 2023, American Express saw a 33% year-over-year increase in deposits, including inflows in the weeks following recent volatility in the banking sector. At the same time, Discover deposits increased by 18%. Synchrony Financial, the issuer of many merchant credit cards, also posted a 17% year-on-year deposit growth in the first quarter, while Capital One’s deposits increased his 12%.
By contrast, Bank of America’s total deposits fell about 8% year-over-year in the first three months of 2023, while Wells Fargo’s deposits fell 7% year-over-year. Citigroup’s deposits were flat.
The move reflects consumers’ desire to find higher yielding savings accounts, a trend that blossomed last year and was further accelerated by the turmoil caused by the bank failures in March.
“People are more willing to go to online-only banks in pursuit of higher profits. Chief Credit Analyst Matt Schultz said. He told Yahoo Finance on LendingTree.
“Major improvement in returns”
With the economic situation still volatile, some consumers are being cautious about where they invest their money.
A year after the Federal Reserve launched a rate-hiking campaign aimed at slowing inflation, the big banks saw a slow rise in savings deposit yields. However, credit card issuers offer more attractive options for higher yield savings.
“It takes something really important to get people to change their banks because it’s not easy,” Schultz said. “To move people, we needed to significantly increase revenue, improve service, offer credit card perks and interest rates, and now it seems to be happening.”
Another example is Apple Card’s new high-yield savings account, which had accumulated nearly $1 billion in deposits by the end of its opening week in April.
Apple’s new product offers daily benefits with a 4.15% annual yield (APY) using your Goldman Sachs savings account. That’s more than 10 times the national average, according to Apple. The account itself has no fees, no minimum deposit or balance requirements, according to the company.
In contrast, Wells Fargo’s Way2Save savings account offers 0.15% APY on all balances and requires a $25 deposit to get started.
“So many people … are living on tight budgets, but if you can double the return you get from your savings, you can save from 2% to 4% or just one time. “It’s certainly possible in certain circumstances, but it’s important,” Schultz said.
“It may not be life-changing, but it may leave a little more room for failure financially.”
Gabriela is a Personal Finance Reporter at Yahoo Finance. follow her on her twitter @__Gabriela Cruz.
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