It hasn't been business as usual for the big banks lately, and not just because of multiple bank failures. From April 2022 to May 2023, total deposits at commercial banks have fallen by just over $1 trillion, according to the St. Louis Federal Reserve. Considering deposits had been rising fairly steadily for the last 50 years up until then, that's a notable shift.
The most likely cause is that consumers can now earn a whole lot more interest by moving their money to high-yield banking accounts. This wasn't the case before, when interest rates were fairly low across the board. But because the Fed has hiked interest rates so much over the last year and change, there's now a huge difference between what traditional banks and online banks offer.
For example, the average savings account APY is 0.39%, according to the FDIC. The average checking account APY is even lower at 0.06%. On the other hand, if you put your money in a high-yield savings account, you could earn 4.50% or more. For $10,000 in deposits, that's a difference of more than $400 per year in interest.
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It's a great incentive to rethink where you store your money, if you haven't already. Now, let's look at what the research says to see who is and isn't pulling their money.
Who's pulling their money from traditional banks?
In February and March, 29% of bank customers said they'd moved deposits from their primary bank in the last 90 days, according to J.D. Power as reported by Forbes. Younger consumers were far more likely to have pulled their money.
Among those 40 and under, 38% reported moving money, and they took out an average of 43% of their deposits. Only 23% of those older than 40 moved money, and they moved an average of 35% of their deposits.
Anyone can benefit from putting their cash in an account with a higher interest rate. But right now, there are more millennials and members of Generation Z who are taking advantage of this opportunity.
How to decide where to park your cash
It's good to occasionally review where you have your money to check that you're getting a competitive return. And if you currently have your money in a traditional bank with a low interest rate, then this is something you should change right away.
As far as where you keep your money, there are many options available. Finding the right one will depend largely on how accessible you need that money to be.
For accessibility, consider these options
For cash you could need at any moment, it's best to stick to accounts that let you make withdrawals whenever you want. Options include:
- High-yield savings accounts: These work like any other savings account, but they're offered by online banks, so they have much higher interest rates.
- Money market accounts: These offer interest rates on par with high-yield savings accounts, and they also have the more convenient withdrawal options seen in checking accounts, such as debit cards or checks. The catch is that they often have high minimum deposit requirements.
For longer-term growth, consider these options
If you have money you won't need at a moment's notice, and you'd like to make it grow, the next factor to consider is your timeline. For funds you plan to use within about five to seven years, you may not want to invest in anything that could lose value, such as stocks. Fixed-income products are a good option here, and they include:
- Certificates of deposit (CDs): These have a fixed interest rate and term. You must keep your money in the CD for the full term to avoid early withdrawal penalties. CDs are useful because they sometimes have higher interest rates than savings accounts, and you can lock in that interest rate, which protects you in the event that rates drop.
- Bonds: These are debt obligations you can buy to receive interest payments on a regular schedule. Government bonds, such as Treasuries, are the safest option. There are also corporate bonds issued by companies that want to raise money.
All of the above are good places to put money that you aren't using for long-term investing. That includes your emergency fund and money you're setting aside for any savings goals, such as a vacation or a down payment on a home. No matter how long you end up holding on to this money, it makes sense to earn as much interest on it as possible.
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FAQs
Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.
Are people withdrawing their money from banks? ›
In all, customers have withdrawn about $70 billion in recent weeks, or roughly 40 percent of the bank's deposits, the Wall Street Journal reported this week.
Why do banks ask why you are withdrawing money? ›
Withdrawals over $10,000 may trigger Anti-Money Laundering and Terrorism Financing red flags and cause the bank to ask questions about your cash. These should be pretty easy to answer and leave with your money. For withdrawals under $10,000 there is less reason for the bank to want to know why you want your own cash.
Can banks stop you from withdrawing money? ›
A bank account freeze means you can't take or transfer money out of the account. Bank accounts are typically frozen for suspected illegal activity, a creditor seeking payment, or by government request. A frozen account may also be a sign that you've been a victim of identity theft.
What is causing the regional banking crisis? ›
The decline in commercial real estate valuations led to worries about whether some regional banks would see higher default rates from borrowers in the commercial real estate sector, and thereby incur greater losses. Second, in order to fight off inflation, the Federal Reserve (Fed) raised interest rates aggressively.
Can banks seize your money if the economy fails? ›
The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.
Should I be taking my cash out of the bank? ›
In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
Can banks refuse to give you your money? ›
Yes, they can refuse to give you your money if they think something fraudulent is going on. If they think there is money laundering going on, they can put a hold on your account and refused to give you your money until you have proven different.
Why do banks want to get rid of cash? ›
Why Eliminate Cash? Cash can be used in criminal activities such as money laundering and tax evasion because it is difficult to trace. Digital transactions or electronic money create an audit trail for law enforcement and financial institutions and can aid governments in economic policymaking.
What happens if everyone withdraws their money from banks? ›
Bank runs can bring down banks and cause a more systemic financial crisis. A bank usually only has a limited amount of cash on hand that is not the same as its overall deposits. So, if too many customers demand their money, the bank simply won't have enough to return to their depositors.
Be sure to fill in the date, the name on the account, and the account number. If you don't know where to find the checking account number, a teller will be able to look it up with your ID and/or debit card. Then enter the amount of cash you wish to receive.
Can a bank take money out of your account without telling you? ›
No, banks cannot legally take money from your account without permission. However, they can withdraw funds for specific reasons, like overdraft fees, unpaid loans or debts (under the right of offset), suspected fraudulent activity, or legal judgments.
Can I withdraw $20,000 from a bank? ›
Withdrawal limits are set by the banks themselves and differ across institutions. That said, cash withdrawals are subject to the same reporting limits as all transactions. If you withdraw $10,000 or more, federal law requires the bank to report it to the IRS in an effort to prevent money laundering and tax evasion.
Which four banks are in trouble? ›
About the FDIC:
| Bank NameBank | CityCity | Closing DateClosing |
|---|
| First Republic Bank | San Francisco | May 1, 2023 |
| Signature Bank | New York | March 12, 2023 |
| Silicon Valley Bank | Santa Clara | March 10, 2023 |
| Almena State Bank | Almena | October 23, 2020 |
55 more rowsApr 26, 2024
The news: Last Friday, Pennsylvania financial regulators seized and shut down Philadelphia-based Republic First Bank in the first FDIC-insured bank failure of 2024. The deposit insurance fund is expected to pay out $667 million to cover the bank's failure.
Are American banks in trouble? ›
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.
How safe are the banks right now? ›
Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances. You don't have to apply for FDIC insurance.
How much money does the average person have in their bank account? ›
In 2022, the average savings account balance in the United States was $62,410, while the median balance was only $8,000. The average and median balances vary depending on age, with older generations having more savings.
Is the Fed removing money? ›
Between September 2022 and May 2024, officials were shrinking their Treasury holdings by up to $60 billion a month, meaning officials now plan to cut the process by more than half. Fed officials are going to continue letting up to $35 billion of mortgage-backed securities roll off their books each month at maturity.
What caused Americans to withdraw their money from the bank? ›
Thousands of banks failed during the Depression and loss of confidence caused anxious depositors to create "runs" on banks as they tried to withdraw their money before the banks collapsed.
