The Silicon Valley Bank crisis has hammered stocks and almost certainly will curtail lending and economic growth this year. But it appears to be translating into a perk for consumers: Higher bank savings rates.
With some jittery depositors shifting their money from regional banks to large ones, at least some banks are lifting their savings account and CD rates to incentivize customers to stay put or to attract new money to replenish reserves, analysts say.
“It’s likely that concerns about maintaining deposit levels have put upward pressure on some deposit rates at some banks,” says Ken Tumin, founder of DepositAccounts.com, which tracks bank savings and CD rates. Banks, he says, want to “shore up their deposits to reduce the odds of being hurt by a bank run.”
Some online banks, in particular, have increased deposit rates because it’s easier for their customers to move money to competitors, he says.
Ally Bank jacked up the rate of its 11-month, no-penalty CD from 4% to 4.75% on Saturday, March 11, just after Silicon Valley Bank’s failure, Tumin says. The big jump and the weekend timing of the move were both unusual and may have been designed to “reduce outflows of deposits from skittish customers,” he wrote on his website.
The higher rate means an extra $138 in interest during the 11-month term on a $20,000 deposit.
Ally Bank didn’t respond to an email seeking comment.
Rather than stem the loss of funds, some banks may simply be trying to snare a share of the deposits ricocheting through the banking system, one analyst says.
“I think banks are being opportunistic and seeing this….as a good opportunity to capture a customer relationship,” says Garry Zimmerman, founder of MaxMyInterest.com, a platform that lets consumers move money among banks that pay the highest rates.
Silicon Valley Bank collapsed when concerns about its financial health led customers whose deposits were uninsured – because they topped the Federal Deposit Insurance Corp.’s $250,000 limit – to shift their money to bigger banks with more stable assets. Banks rely on deposits to make loans.
A similar meltdown triggered the demise of Signature Bank of New York, threatened First Republic Bank and prompted many depositors across the country to reshuffle their deposits. To contain the crisis and prevent other bank runs, federal regulators have stepped in with aid to ensure that uninsured depositors can access 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 Federal Reserve data released Friday. The effect of the crisis on savings rates can be difficult to isolate because bank interest rates were already climbing significantly in the past year as the Fed has hiked its key short-term rate by 4.75 percentage points to fight inflation – its boldest such campaign since the early 1980s.
While most physical banks with branches have nudged up savings rates just slightly to 0.35% because they’re awash with deposits, online banks have been more aggressive. The average online savings rate is 3.52%, up from 0.49% a year ago, and the average online 1-year CD rate is 4.56%, up from 0.67% a year ago, according to DepositAccounts.com.
The pace of the rate increases, however, accelerated after the Silicon Valley crisis first made headlines on March 8, Tumin says. The average online savings rate rose by 22 basis points to 3.74% from March 1 to March 24, compared with increases of 4 basis points from Jan. 1 to Feb. 1, and 17 basis points from Feb. 1 to March 1.Yet the Fed has been slowing its rate hikes from a half percentage point in December to a quarter point each in early February and last week. That suggests the recent pickup in bank rate increases is at least partly a byproduct of the Silicon Valley crisis and its ripple effects, Tumin says.
Although the bump in average rates is modest, some banks have pushed up rates more substantially.
Phoenix-based Western Alliance, a regional bank whose shares plunged in mid-March during the Silicon Valley fallout before recovering recently, increased the rate of its high-yield savings account three times from March 14 to March 22. The rate climbed from 4.45% to 4.75%, according to DepositAccounts.com.
MainStreet Bank of Fairfax, Virginia, introduced a 15-month, no-penalty CD with a 5% rate on March 14 but the small bank had planned 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 troubles.
He added, however, that MainStreet was planning to offer the CD for just three weeks. With many customers shifting deposits since the crisis, “We’re going to keep it out there now” for another week or two. “I definitely want to have more of a cushion.”
Some analysts don’t see a connection between the bank crisis and higher savings or CD rates.“In a rising rate environment, banks that have been consistently paying competitive yields have repeatedly increased their payouts to remain competitive,” says Greg McBride.
Some banks are also dismissing the suggestion that the Silicon Valley crisis sparked their higher rates.
On March 17, Citizens Access, the online unit of Citizens Bank of Providence, Rhode Island, raised its online savings rate from 3.75% to 4.25%, but bank officials say the move was planned before Silicon Valley’s problems.
“We are always looking for ways to provide value, through innovative products and solutions, as well as trusted advice,” the company said in a statement.
