Businesses Demand Higher Deposit Rates from Banks
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This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Charlie Turner in New York. You might think that waves of consumers are up in arms demanding higher interest rates on their deposit accounts at banks.
Why are businesses, not consumers, demanding higher deposit rates from banks?
But in fact, it's businesses that are demanding higher rates from banks, and they're getting them. That's helped account for a significant rise in interest rates paid out by banks. Joining us with this story is Wall Street Journal reporter Christina Rexrode. Christina, I assume with short-term interest rates on the rise, that means loans from banks are more expensive. And in turn, businesses want a better return on their deposits?
Yeah, that's correct. So this happens every time the Fed raises rates. The banks are always pretty quick to raise the rates that they're charging on loans. That's how they make money. And then they try to keep from raising the rates that they pay on deposits more. for as long as they can, because obviously that is costing them money. You might remember we did a story not that long ago, maybe just a couple weeks ago, about how banks really were not raising the rates that they're paying consumers. Those rates still remain extremely low, even though the Fed has raised short-term interest rates four times. It's the story's a little bit different with businesses and particularly with big corporations. Now, that's for a number of reasons.
Part of that is just businesses, especially the bigger a business is and the more sophisticated it is. It's more likely to have a treasurer or a whole treasury department whose whole job is to, you know, make sure that its deposits are, you know, in the place where they're making the most money.
It seems to me that companies, especially big companies, have a lot of leverage. They have millions or billions of dollars on deposit, and they can either push for better rates or they can threaten to walk to another bank.
Yeah, they do have, you know, a bank is going to feel it a lot more if a big Fortune 100 company takes their deposits away than, you know, if you or me take our deposits away. These companies also provide a lot of other business for the banks. You know, they pay the bank fees for mergers and acquisitions and they pay the bank's fees for treasury management and all kinds of things. And obviously the banks don't want to lose that either. I don't think that consumers or businesses are particularly happy with the rates that they're with the deposit rates that they're getting. But banks are a little bit more incentivized to listen to businesses when businesses are the ones complaining about it.
Let's talk about numbers, rates, if we can. How fast have they risen? And do you know where approximately they sit now?
Well, the Fed has raised rates four times. So the Fed's short-term rates are, it's fair to say, they're right about 1%. If you're a consumer and you have a savings account at a bank, you're not making very much return on that at all. You're maybe making 0.1%, 0.2%. It's higher for the corporates, maybe about 0.9 percent or one full percent. The banks don't generally disclose this. They don't like to go around advertising what they're paying.
I'm speaking with Christina Rexrode of The Wall Street Journal, and you're listening to Your Money Matters. Thanks for listening, everyone. Christina, aren't US banks also being pressured by overseas banks that want corporate business? Isn't there that competition?
Yeah, that's one of the things. There are some banks that want to build up their deposits and are more willing to pay higher rates. That's going to put pressure on places like Bank of America or JPMorgan Chase, which do not have that same pressure.
How do banks respond differently to rising short-term rates for loans versus deposits?
They don't necessarily need to bring in a lot more deposits because they already have a lot of deposits, but they are going to face competition.
Isn't it true that for a while after the financial crisis, banks really didn't care as much about gathering deposits since rates were low and loan demand was weak?
Yes, but that's also still a little bit true today.
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