Major Banks are Just Awash in Cash

The Wall Street Journal has an interesting article today which highlights how banks have become so completely awash in deposits that they are discouraging major companies from continuing to increase their cash deposits. It notes that CFOs and treasurers at companies, such as Verizon, ATT and Advanced Auto Parts, believe that the current economic circumstances require them to increase their allocation to cash, and that, in turn, is causing capital allocation problems for major banks.

The article is well worth a read, but it also raises the question of whether retail customers can expect to see any competition for their savings and CD dollars any time in the near future.

Given that total commercial deposits at US banks exceed $17.09 trillion according to the Federal Reserve, increasing by $411 billion over the last 2 months and by almost 50% over the last 3 years, and that the Federal Reserve seems intent on holding rates at zero for the coming two years, it seems unlikely that retail customers are going to see any competition among major banks for their deposits in the short term.

This is highlighted by the fact that the financial manager at ATT is quoted in the third paragraph of the article as saying that they really aren’t interested in optimizing their yield. So, if ATT is just trying to hold their cash, should you give up and do the same?

The answer is no. While the underlying economic circumstances are the same, as a retail depositor, you still have more avenues available to you to try to maximize your cash.

First, major online banks, such as Ally, Citizens Access, Synchrony, CIT, Purepoint and Marcus (Goldman Sachs) have invested tremendous amounts over the last several years in advancing their banks among retail consumers. So far, they have decided that there is a floor of about 0.40% APY below which they will not go for risk of eroding the retail investor goodwill and deposit basis that they have spent years building.

Compare the best online savings rates here.

Second, retail consumers have access to local banks and local credit unions that may not be able to even meet capital requirement rules required to service large corporate customers. Moreover, these banks are interested in retail customers that they can draw into other financial management and lending products and are therefore willing to remain competitive through the current environment.

Compare local bank savings rates near you here and compare local credit union savings rates near you here.

Certainly some depositors are going to be led to accept nothing or virtually nothing on their deposits, but for those who are willing to take the time to open new accounts within FDIC limits for banks and NCUA limits for credit unions, there continues to be incremental interest to be gained.