It hasn't been business as usual for the big banks lately, and not just because of multiple bank failures. From April 2022 to May 2023, total deposits at commercial banks have fallen by just over $1 trillion, according to the St. Louis Federal Reserve. Considering deposits had been rising fairly steadily for the last 50 years up until then, that's a notable shift.
The most likely cause is that consumers can now earn a whole lot more interest by moving their money to high-yield banking accounts. This wasn't the case before, when interest rates were fairly low across the board. But because the Fed has hiked interest rates so much over the last year and change, there's now a huge difference between what traditional banks and online banks offer.
For example, the average savings account APY is 0.39%, according to the FDIC. The average checking account APY is even lower at 0.06%. On the other hand, if you put your money in a high-yield savings account, you could earn 4.50% or more. For $10,000 in deposits, that's a difference of more than $400 per year in interest.
It's a great incentive to rethink where you store your money, if you haven't already. Now, let's look at what the research says to see who is and isn't pulling their money.
Who's pulling their money from traditional banks?
In February and March, 29% of bank customers said they'd moved deposits from their primary bank in the last 90 days, according to J.D. Power as reported by Forbes. Younger consumers were far more likely to have pulled their money.
Among those 40 and under, 38% reported moving money, and they took out an average of 43% of their deposits. Only 23% of those older than 40 moved money, and they moved an average of 35% of their deposits.
Anyone can benefit from putting their cash in an account with a higher interest rate. But right now, there are more millennials and members of Generation Z who are taking advantage of this opportunity.
How to decide where to park your cash
It's good to occasionally review where you have your money to check that you're getting a competitive return. And if you currently have your money in a traditional bank with a low interest rate, then this is something you should change right away.
As far as where you keep your money, there are many options available. Finding the right one will depend largely on how accessible you need that money to be.
For accessibility, consider these options
For cash you could need at any moment, it's best to stick to accounts that let you make withdrawals whenever you want. Options include:
- High-yield savings accounts: These work like any other savings account, but they're offered by online banks, so they have much higher interest rates.
- Money market accounts: These offer interest rates on par with high-yield savings accounts, and they also have the more convenient withdrawal options seen in checking accounts, such as debit cards or checks. The catch is that they often have high minimum deposit requirements.
For longer-term growth, consider these options
If you have money you won't need at a moment's notice, and you'd like to make it grow, the next factor to consider is your timeline. For funds you plan to use within about five to seven years, you may not want to invest in anything that could lose value, such as stocks. Fixed-income products are a good option here, and they include:
- Certificates of deposit (CDs): These have a fixed interest rate and term. You must keep your money in the CD for the full term to avoid early withdrawal penalties. CDs are useful because they sometimes have higher interest rates than savings accounts, and you can lock in that interest rate, which protects you in the event that rates drop.
- Bonds: These are debt obligations you can buy to receive interest payments on a regular schedule. Government bonds, such as Treasuries, are the safest option. There are also corporate bonds issued by companies that want to raise money.
All of the above are good places to put money that you aren't using for long-term investing. That includes your emergency fund and money you're setting aside for any savings goals, such as a vacation or a down payment on a home. No matter how long you end up holding on to this money, it makes sense to earn as much interest on it as possible.
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FAQs
Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.
Why is everyone withdrawing from banks? ›
A recent CNBC Select and Dynata Banking Behaviors Survey found that 40% of respondents who reported having withdrawn cash from their savings say they did so to cover fixed bills, such as a car payment. The second most cited reason, at 38%, was to cover variable expenses like groceries.
Why do banks ask why you are withdrawing money? ›
Withdrawals over $10,000 may trigger Anti-Money Laundering and Terrorism Financing red flags and cause the bank to ask questions about your cash. These should be pretty easy to answer and leave with your money. For withdrawals under $10,000 there is less reason for the bank to want to know why you want your own cash.
Where are people moving money from banks to? ›
But that hasn't stopped people from shifting their money around. Americans are moving hundreds of billions of dollars out of banks — especially smaller regional banks — into larger institutions, as well as money market funds, government bonds, high-yield online savings accounts, even cryptocurrencies and gold.
Can the FDIC run out of money? ›
Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.
Can banks seize your money if the economy fails? ›
It indicates an expandable section or menu, or sometimes previous / next navigation options. Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Are Americans pulling money out of banks? ›
Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.
Can banks stop you from withdrawing money? ›
Unless your bank has set a withdrawal limit of its own, you are free to take as much out of your bank account as you would like. It is, after all, your money. Here's the catch: If you withdraw $10,000 or more, it will trigger federal reporting requirements.
What to say to the bank when withdrawing cash? ›
Be sure to fill in the date, the name on the account, and the account number. If you don't know where to find the checking account number, a teller will be able to look it up with your ID and/or debit card. Then enter the amount of cash you wish to receive.
How do I stop my bank from taking money? ›
You can contact your bank and place a stop payment order on the recurring transaction. Generally, a stop payment order is only good for six months. To stop payment, you will need to notify your bank at least three business days before the next payment is scheduled to be made. Notice may be made orally or in writing.
Average household checking account balance by gender
| Gender of reference person | Average checking account balance in 2022 | Median checking account balance in 2022 |
|---|
| Male | $20,221.19 | $3,800.00 |
| Female | $8,272.74 | $1,200.00 |
Oct 18, 2023
Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day.
Can the government see how much money is in your bank account? ›
The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
What happens to my CD if the bank fails? ›
The FDIC Covers CDs in the Event of Bank Failure
But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure. CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.
What happens to my money if the banks collapse? ›
Bottom line. For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.
What happens to your debt if the bank collapses? ›
So, no, your loans aren't forgiven if your lender goes bankrupt. You're still responsible for making payments, the only difference is that you'll be sending payments to another institution instead of the one that originally gave you the loan.
Should I withdraw money from the bank now? ›
In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.
Can the government take money from your bank account in a crisis? ›
The government can seize money from your checking account only in specific circ*mstances and with due process. The most common reason for the government to seize funds from your account is to collect unpaid taxes, such as federal taxes, state taxes, or child support payments.
Are banks in danger of failing? ›
Consulting firm Klaros Group analyzed about 4,000 U.S. banks and found 282 banks face the dual threat of commercial real estate loans and potential losses tied to higher interest rates. The majority of those banks are smaller lenders with less than $10 billion in assets.
Should I be concerned about my bank? ›
While banks are insured by the FDIC, credit unions are insured by the NCUA. "Whether at a bank or a credit union, your money is safe.
