Last edited Sun Mar 19, 2023, 07:27 PM - Edit history (1)
a spiral of raising depositor rates because other banks are.
From the OP's link
Some financial institutions are upping the yields on their deposit accounts after the failures of Silicon Valley Bank and Signature Bank (SBNY) sparked fears of potential bank runs.
In an unusual move on Saturday per one industry analyst, Ally Bank (ALLY) increased the annual percentage yield on its 11-month, no-penalty certificate of deposit, or CD, to 4.75% from 4%. On Monday, UFB Direct — the online division of Axos Bank (AX) — hiked the rates on its money market and savings accounts from 4.55% to 5.02%.
And Synchrony Bank (SYF), Discover (DFS), and Charles Schwab (SCHW) all came out with higher rates on brokerage CD offerings on Monday, even though Treasury yields— which those rates tend to follow — fell.
These moves present an opportunity for savers to capitalize on bank jitters by securing higher rates for the money they’re socking away for emergencies or other earmarks.
... Tumin also speculated that some of these banks are raising rates to attract new, smaller-dollar deposits that remain below the FDIC insurance limit of $250,000.
The articles says they are trying to attract deposits under $250,000 so those will be insured by the FDIC. What I don't get is why it matters to the bank whether they have some uninsured deposits (the parts above $250,000)? The bank has primary obligation no matter what the size of the deposit to make good on all deposits, but if they can't they can't. Then the FDIC makes good on the first $250,000, but that goes to the depositors, not to the bank.
The only thing I can think of is that when there are jitters about a bank's health, the uninsured depositors would be more likely to quickly move their money out to somewhere else than a fully insured depositor would. Well, sounds like a good reason.
But it doesn't say how these moves to raise deposit rates will attract predominantly insured deposits. Why wouldn't a large depositor also want a good rate?
It just doesn't look good for banking industry health to get in a competition like this, although it certainly is good for savers who stay below the $250,000. I'm certainly enjoying it, as long as it lasts, which might be for only a year or two.
I read that some money is migrating to money market funds which aren't insured, but in the past there have been bailouts to avoid loss of principal.
And Treasuries seems like a good place to put excess amounts, but the RepubliCONs are doing their utmost to screw that up.
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