US Banks See Customers Demanding Higher Yields on Deposits

(Bloomberg) — The country’s two largest banks just put rivals on notice: they’re finally prepared to pay out more to savers demanding higher yields on their deposits.

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After a 12 months of relentless rate hikes by the Federal Reserve, JPMorgan Chase & Co. and Bank of America Corp. took activates Friday warning that they’re considering boosting the quantity they pay out on the trillions of deposits they’ve sitting on their balance sheets. The moves are poised to weigh on net interest income, the revenue banks collect from loan payments minus what they pay depositors.

“We’ve never had rates go up this fast,” JPMorgan Chief Executive Officer Jamie Dimon said on a conference call with analysts discussing fourth-quarter earnings. “I expect there can be more migration to CD, more migration to money-market funds,” he said, referring to products paying out higher yields, including certificates of deposit.

JPMorgan also can have to vary the interest it pays on savings accounts, Dimon said. The Recent York-based bank forecast 2023 net interest income of $73 billion, lower than analysts had estimated, partly driven by the interest repricing and modest deposit attrition.

The massive banks are late to the party with their pledges, lagging behind higher-yield options available to consumers elsewhere. First Web Bank of Indiana is offering an annual percentage yield of 4.39% for a six-month rate, while Synchrony Financial is paying 3.9% for a similar term, in line with Bankrate LLC. Even US savings bonds pay more, with Series I offerings earning a composite rate of just about 6.9% — they usually’re a minimum of partially indexed to inflation and are available with a tax advantage.

BofA also expects to pay higher rates, Chief Financial Officer Alastair Borthwick said. The second-largest US bank also said its net interest income can be lower than analysts had expected this 12 months, with Borthwick pointing to global banking and the upper end of wealth management as areas where customers are shifting their deposits into “high-yield alternatives.”

Each banks have, thus far, been in a position to keep a lid on deposit costs. Each banks pay depositors just 0.01% for his or her savings on standard accounts, their web sites show.

Average deposits fell 4% within the fourth quarter from a 12 months earlier at JPMorgan, and 5% at BofA.

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