https://www.bbc.com/news/business-65180130 BBC Homepage * Skip to content * Accessibility Help * Your account * Home * News * Sport * Reel * Worklife * Travel * Future * More menu More menu Search BBC * Home * News * Sport * Reel * Worklife * Travel * Future * Culture * Music * TV * Weather * Sounds Close menu BBC News Menu * Home * War in Ukraine * Climate * Video * World * US & Canada * UK * Business * Tech * Science More * Stories * Entertainment & Arts * Health * In Pictures * Reality Check * World News TV * Newsbeat * Long Reads * Business * Market Data * New Economy * New Tech Economy * Companies * Technology of Business * Economy * CEO Secrets * Global Trade * Cost of Living US savers get savvy ditching and switching banks * Published 23 hours ago Share close panel Share page Copy link About sharing a person at an ATMImage source, Getty Images By Natalie Sherman Business reporter, New York A wave of transfers is hitting US banks, as a sharp rise in interest rates after years of low borrowing costs creates more opportunity for savers - and new challenges for banks. Until recently, software engineer Claire Long stashed all her money in a checking account she had opened years ago as a university student. She let thousands of dollars build up there despite its paltry interest rate. The prospect of earning 4% or more shook her out of her complacency. This month, she transferred $20,000 (PS18,000) to a different bank offering a higher interest rate. "I never paid attention. I just left my money in the account," says the 26-year-old, who lives in Massachusetts and credits a personal finance podcast with alerting her to better options. "I don't want my money to just sit in one place. I want to make the most out of it." Banks have paid notoriously low rates on savings for years - something that has yet to change at many of the biggest firms, despite the US central bank hiking its benchmark rate from near zero to more than 4.75% in just a year. But there are signs that the sharp climb may be starting to shake up the status quo - unsettling a financial system accustomed to relying on low-cost deposits as a key source of funding and profits. Claire LongImage source, Claire Long Image caption, Claire Long recently moved $20,000 to a new bank offering higher interest rates - part of a wave of transfers hitting the financial system "It's a competitive market," Jeremy Barnum, chief financial officer of JPMorgan Chase told investors on Friday, as the firm reported that average deposits had fallen 8% from a year ago. Roughly 30% of US bank customers moved money from their primary account to another bank in March, up from 27% in the previous year, according to a survey by consumer intelligence firm JD Power. A third said they were making the switch for higher rates, up from a quarter a year earlier. That's a "slow climb", says Paul McAdam, JD Power's senior director of banking. "But extrapolate this across millions of consumers and it makes a difference." Questions about how banks will handle the change sharpened last month after the US was hit by the two biggest bank failures since the 2008 financial crisis. * US bank taken over in biggest failure since 2008 * Is this a banking crisis - how worried should I be? In the weeks following the collapse of Silicon Valley Bank and Signature Bank, billions of dollars in deposits shifted hands, jolting a system accustomed to savings serving as a stable source of funding. While that rush appears to have subsided, many banks say they expect consumers to continue to hunt for the best deals, as online banking makes shifting funds easier than ever and rapid price inflation makes people unusually sensitive to erosion in the power of their savings. "Consumers are more aware of how their returns stack up against the loss of buying power," says Greg McBride, chief financial analyst at Bankrate.com, which has tracked interest rates offered to consumers for decades. "They have taken notice of the higher returns available at some banks and not others and have moved their savings accordingly." Many people, like Claire, are switching allegiances to open new high-yield or money market savings accounts, which can pay interest rates of 3.5% or more, compared to the 0.24% average interest rate on a traditional savings account, according to data collected by Bankrate. Others are shifting their money out of banks entirely, opting for other kinds of investments, such as US government bonds or money market mutual funds, which buy relatively low-risk short-term government and corporate debt and can offer rates north of 4.5%, but offered little advantage over a savings account when interest rates were low. customers wait outside Silicon Valley BankImage source, Reuters Image caption, Money moved to big banks and money market funds after the collapse of Silicon Valley Bank The moves led deposits held by banks in the US to fall last year for the first time in decades, dropping more than $200bn at the end of December from a year earlier, according to data from the Federal Reserve. Fitch expects deposits to decline by another $1.6 trillion this year. "Banks and policymakers were ready for the deposit outflows that were happening through February. What is definitely the case now is we have increased uncertainty as to whether outflows will turn out to be bigger than historical norms," says Alexi Savov, professor of finance at New York University's Stern School of Business. The decline in deposits so far is still consistent with what typically happens when interest rates rise. Overall, the banking system remains flush with cash, reflecting the unprecedented surge in deposits during the pandemic, as savings rates increased and government assistance programmes fattened people's accounts. But worries abound about what lies ahead for the economy as the funds available for lending shrink. Analysts say some banks, especially the biggest, can afford to lose some of their outsize deposits, without a major hit to profit or activity. But Prof Savov says the outflows will put pressure on others, especially smaller regional firms, squeezing profits and leading them to pull back their lending - with potentially serious ramifications for local economies and some business sectors, such as commercial property, where regional banks play a big role. The recent bank failures caused a sharp acceleration in outflows from those smaller players, he notes. Signage for Certificate of Deposit interest rates is displayed outside of a First Republic Bank branch in Santa Monica, California on March 20, 2023.Image source, Getty Images Image caption, Some banks are paying more to keep hold of depositors "It creates a much bigger risk of a bumpy landing, potentially a recession," Prof Savov says. "It's just such a live ball." The growth of money market funds, which saw their holdings surge in the weeks after the banking crisis, has sharpened the removal of money from the economy, since the funds do not play a direct role in lending, while having the option of parking their holdings with the US central bank, says Steven Kelly, senior research associate at the Yale School of Management's programme on financial stability Their growth also risks making the financial system more unstable, since the firms in charge of such investments are quick to flee at signs of trouble, unlike everyday depositors, who can count on the government to guarantee accounts up to $250,000, he adds. "An insured depositor maybe won't run at the first sign of bad news," he says, but a money market fund is likely to "just disappear overnight". If the economy encounters serious problems, the US central bank is expected to cut rates - a scenario many investors see as happening sooner following the bank panic. That means the reshuffling of deposits, as people like Claire seek more for their savings, could prove short-lived too. Related Topics * Savings * Personal finance * Banking More on this story * Bank of England considers raising saver protection + 3 days ago Bank of England Governor Andrew Bailey speaking in Washington. * US bank taken over in biggest failure since 2008 + 11 March man with umbrella outside bank * Is this a banking crisis - how worried should I be? + 21 March woman at atm Top Stories * Live. Four dead and 28 injured in Alabama 16th birthday shooting + Published 8 hours ago * Further fierce fighting in Sudan as clashes spread + Published 5 hours ago * Shock and anger in Khartoum, a city not used to war + Published 6 hours ago Features * Why Russia cares so much about international sport Putin playing ice hockey in Sochi, 2019 * The 'ninjas' fighting climate denial on Twitter Maria and Arthur, members of Team Ninja Trollhunters, stand next to each other wearing face masks to hide their identity * The terrible toll on women of Yemen's war The UN estimates women are the main breadwinners for one in three families displaced by the fighting * * How to talk with children about climate change. VideoHow to talk with children about climate change Child holding a globe * US savers get savvy ditching and switching banks Claire Long * The fishy business of a Chinese factory in Gambia A fisherman on the beach in Gunjur, The Gambia * The Indian 'American dream' which ended in a scam in Bali Sukhjinder * 'I am watching Notre-Dame being reborn' A restorer works on a stained glass window from Notre-Dame * Meet the hacker armies on Ukraine's cyber front line Oleksandr in a air raid bunker Elsewhere on the BBC * The WW1 game that's eerily accurate video game field * Why Gen Z workers are starting on the back foot Woman working on bed * How dinosaurs reached 'titanic' sizes dinosaur bones foot Most Read 1. 1 EU rejects Ukraine grain ban by Poland and Hungary 2. 2 The brazen murder of a mafia don-turned-politician 3. 3 Suspected leaker's hometown reacts to arrest of 'smart idiot' 4. 4 Shock and anger in Khartoum, a city not used to war 5. 5 Four dead at US 16th birthday party shooting 6. 6 Further fierce fighting in Sudan as clashes spread 7. 7 US savers get savvy ditching and switching banks 8. 8 Why Russia cares so much about international sport 9. 9 Former Indian MP shot dead live on TV 10. 10 Sixteen dead in fire at Dubai apartment building BBC News Services * On your mobile * On smart speakers * Get news alerts * Contact BBC News * Home * News * Sport * Reel * Worklife * Travel * Future * Culture * Music * TV * Weather * Sounds * Terms of Use * About the BBC * Privacy Policy * Cookies * Accessibility Help * Parental Guidance * Contact the BBC * Get Personalised Newsletters * Why you can trust the BBC * Advertise with us * AdChoices / Do Not Sell My Info (c) 2023 BBC. The BBC is not responsible for the content of external sites. Read about our approach to external linking.