It is staggering to see inflation spreading across the globe but how have the banks been doing through this inflation? For those unaware post Covid19 a lot of customer cash has been deposited into banks. The banks then were filled on the brim with cash and as of now still have a lot of customer deposits.
Chart at front of post courtesy of ceic data shows that in just the past six months costumer deposits in US banks have fallen by half. Yet what is staggering even after the drop there is still a record average amount of deposits.
2020-2021 there was simply a lot of cash and a lot went into the banks. With that much money in banks you would think people were putting the money to work by storing it in the banks.
Banks Interest Rates
(Courtesy of elite personal finance)
As we have now heard Fed has been raising rates for months and current funds rates is around 2.5% - 2.75%. Well right before the rise in rates the interest rate banks were giving out to customer's deposits were little to zero as shown in 2021 numbers.
(Courtesy of elite personal finance)
As of 2022 the % rates from banks are all up but not as much as the Fed's rates. However they are mostly higher than even the top bank rate of Capital One exceeding 0.40% of 2021 with today's rates. Also worth noting the banks are slow in raising rates.
Snapshot of some of the top bank rates in saving accounts shows all are still under Fed's rates but climbing. A lot of options are at 2% yield and this all happened in less than a year, pretty much the past six months. However not without a big cost.
Inflation is high and last checked closed to 8% yearly increase and it has been the major force to why the Fed has raised rates to cope. With increase rates the banks are now having less cash due to more customer withdraws.
Conclusions
For over a decade interest rates in banks have hovered at close to zero but it would take a massive inflation that would force the Fed to raise borrowing rates and in turn raise bank rates. The end result now is a depletion of cash from the economy while the demand for cash is rising!
None of what I write is financial advice. It is for entertainment purposes only. Thanks for reading!
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