U.S. banks are being forced to do something they haven’t done for 15 years: fight for deposits.
After years of earning next to nothing, depositors are discovering a trove of higher-yielding options like Treasury bills and money market funds as the Federal Reserve ratchets up benchmark interest rates. The shift has been so pronounced that commercial bank deposits fell last year for the first time since 1948 as net withdrawals hit $278 billion, according to Federal Deposit Insurance Corp. data.
To stem the outflows, banks are finally starting to lift their own rates from rock-bottom levels, particularly on certificates of deposit, or CDs. More than dozen U.S. lenders including Capital One Financial Inc. are now offering an annual percentage yield of 5% on one-year CDs, a rate that would have been unspeakably high two years ago. Even the big banks are feeling the heat. At Wells Fargo & Co., 11-month CDs now pay 4%.
