Americans are increasingly putting their hard-earned money into high-yield financial products as U.S. banks struggle to stem the outflow of deposits.
People are increasingly tired of the low interest rates on deposits offered by banks and are now pouring a record $6.15 trillion into money market funds, the Financial Times reported, citing data from the Investment Company Institute.
This is $2.45 trillion more than in January 2020.
The Federal Reserve's repeated interest rate hikes have allowed funds to offer rates of 5% or more, more than 5 times the typical rates on benchmark checking accounts.
To remain competitive, US banks are starting to pay significantly higher rates, which directly impacts their net interest income (NII).
Wells Fargo, Citigroup and Bank of America saw their net interest income decline in the second quarter of 2024, new data shows.
Wells Fargo reported a 9% drop in net interest income for the quarter, its lowest in two years. Citigroup and Bank of America reported a 3% drop.
The growth of investment banking and trading is boosting the profitability of large banks, which protects lenders from falling net interest income.
Between March 2022 and July 2023, the Federal Reserve raised its benchmark interest rate 11 times to a range of 5.25% to 5.5%, a peak not seen in two decades.
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