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The big banks are offering 0% on deposits while raking massive profits. They can do that because they’re too big to fail, so people put their money there anyway

The big banks are offering 0% on deposits while raking massive profits. They can do that because they’re too big to fail, so people put their money there anyway so it will be safe. They get enough deposits, so no need to offer better rates to attract more. Meanwhile money market funds are yielding over 4%. Interactive brokers is offering over 4% and it’s insured to some ridiculous amount (standard 250k + extra coverage from Lloyds of London). You can buy 3 month or 6 month treasuries with yields well over 4%. I don’t know why anyone would want to keep cash in the big banks, unless they really need it liquid in the short term.

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cragfar 3y ago
The larger banks simply can't offer high interest rates due to the amount of their deposits. For example, JP Morgan Chase has yearly net income of ~$50 billion. The size of their interest bearing deposits is 1.6 trillion. So every 1% rise in savings account rates costs them $16 billion a year.
- ska 3y ago
  Your two statements don't match up. Sounds like they can offer at least 3% more, no?
  - cragfar 3y ago
    Yes they do. Do you think a company is going to set themselves for a best case scenario of breaking even? Or just take a 25% hit to profit unless they absolutely need to? I just look at Wells Faro, and they have $900 billion in interest bearing deposits. With NI of $16 billion, just going up to 1% will wipe out 55% of profit.
    - ska 3y ago
      I don't think I articulated myself well, I wasn't taking a judgement. There is no logical inference that a company needs (or deserves) the profit margin it had last year, for example, that's just a fact of business. My point was essentially to stay viable, the bank needs to have some profit margin. Here is a classic business choice between maintaining or improving profit margin, and maintaining or improving services. So my point was they could obviously remaining viable while offering higher rates, they choose not to because it increases short term profit - if they think they are losing enough business to other banks with better rates, presumably they will start raising them to compete. The fact that they can't really meet current federal rates and stay profitable is interesting, it suggests they have some pretty heavy cost centers to carry.

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cragfar 3y ago

The larger banks simply can't offer high interest rates due to the amount of their deposits. For example, JP Morgan Chase has yearly net income of ~$50 billion. The size of their interest bearing deposits is 1.6 trillion. So every 1% rise in savings account rates costs them $16 billion a year.

ska 3y ago
Your two statements don't match up. Sounds like they can offer at least 3% more, no?
- cragfar 3y ago
  Yes they do. Do you think a company is going to set themselves for a best case scenario of breaking even? Or just take a 25% hit to profit unless they absolutely need to? I just look at Wells Faro, and they have $900 billion in interest bearing deposits. With NI of $16 billion, just going up to 1% will wipe out 55% of profit.
  - ska 3y ago
    I don't think I articulated myself well, I wasn't taking a judgement. There is no logical inference that a company needs (or deserves) the profit margin it had last year, for example, that's just a fact of business. My point was essentially to stay viable, the bank needs to have some profit margin. Here is a classic business choice between maintaining or improving profit margin, and maintaining or improving services. So my point was they could obviously remaining viable while offering higher rates, they choose not to because it increases short term profit - if they think they are losing enough business to other banks with better rates, presumably they will start raising them to compete. The fact that they can't really meet current federal rates and stay profitable is interesting, it suggests they have some pretty heavy cost centers to carry.