Moments after the Fed announced it would hike rates for the first time in 9 years on December 16, the ink on Yellen’s statement was not yet dry and one after another bank announced it would hike its respective Prime rate – the benchmark rate on everything from small business loans to credit card monthly fees – from 3.25% to 3.50%.
Yet while banks scrambled to increase how much they collect courtesy of the Fed’s rate hike, none showed any interest in boosting the interest they pay on deposits, a rate which currenly averages below 0.1% across the US financial system.Â
As the WSJ put it two weeks after us, “hours after the Fed’s decision earlier this month, the largest U.S. banks announced increases in the prime rate, a reference rate for a variety of loans including credit-card debt. But most banks didn’t make any corresponding hikes to the interest they pay to depositors. The moves signaled that at least for now most banks hoped to pocket the gains from the Fed’s move.”
And this is what we said two weeks ago, “those who have savings at US banks, please don’t hold your breath to see any increase on the meager interest said deposits earn: after all banks are still flooded with about $2.5 trillion in excess reserves, which means that the last thing banks care about is being competitive when attracting deposits.”
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We were wrong: some should certainly have held their breath, because as the WSJ put it two weeks after us, “some bank customers won’t have to wait much longer to reap benefits from the Federal Reserve’s decision to raise interest rates.”
Case in point: J.P. Morgan, which will begin raising deposit rates for some of its “biggest clients” in January. “Biggest” clients, of course, is a universal euphemism for “wealthiest.”
The WSJ adds that J.P. Morgan’s deposit-rate increase will affect most institutional clients and the size of the increases will vary, the person said. They will apply to “operating†deposits, which are deemed stickier and less likely to be withdrawn in a crisis.
