Among J.P. Morgan's many consumer accounts, one number is almost everywhere: 0.01%.
Whether you're saving $5 or $500,000, the interest rate on Chase Sapphire, Chase Premier Plus, and Chase Private Client checking accounts is only 0.01%. The same goes for savings account interest rates. The so-called “relationship rates” (relationship rates) are only 0.02%.
J.P. Morgan reported a decline in net interest income for the first quarter compared to the last three months of 2023, the first month-on-month decline in 11 quarters.
There are also difficult brothers and bad brothers in the bank. Wells Fargo reported net interest revenue that fell short of analysts' expectations. Both banks mentioned that increased interest expenses on deposits offset the benefits of higher interest rates on loans.
This problem has actually quietly surfaced since the Federal Reserve began raising interest rates; it has only recently affected Wall Street profits. Americans are using cash smarter.
The fixed deposit interest rate explains it all best. According to Federal Reserve data, as of the end of 2023, commercial banks of the United States held a total of 2.26 trillion US dollars of large rated deposits with an amount of not less than 100,000 US dollars, far higher than the 615 billion US dollars in the same period last year, and recorded the biggest increase since records began.
Wells Fargo said last week that interest-free deposits fell 18% year over year, while the size of interest-bearing deposits increased.
“Mainstream trend”
Jeremy Barnum, chief financial officer at J.P. Morgan Chase, said the shift in deposits from checking and savings accounts to time deposits is a mainstream trend”.
“With a policy interest rate of 5% and interest rates on checking and savings accounts at almost zero, there's no reason to think that funds won't migrate,” Barnum said during the first quarter results conference. The bank will seize this “money flow opportunity.”
When the Federal Reserve first started raising interest rates, the US banking industry benefited quite a bit from it because interest income on loans increased, and they were slow to raise interest rates on deposits, which led to a sharp rise in net interest spreads last year.
Another option for Americans is to avoid banks altogether.
Some money market funds have a yield of about 5%, and the fund locking mechanism is not the same as that of fixed deposit statements. According to data from the Investment Company Institute, the cash volume of these instruments soared by more than 1 trillion US dollars in 2023, the biggest increase in history.
It's easier than ever for consumers to make choices; they only need a few smartphone clicks to operate, which is another reason banks are forced to compete on interest rates. Although the impact on J.P. Morgan Chase and the Bank of America giants is minor, it may put pressure on regional banks.
Fintech companies also pose a threat to banks, boasting that their savings interest rates are more than 10 times the national average. The interest rate offered by LendingClub and Betterment was as high as 5%, and SoFi Technologies Inc.'s interest rate was about 4.6%.
Barnum said, “In a world where deposits of about 900 billion US dollars are close to no interest, a small change in interest rate pricing can drastically change the net interest yield.”