JPMorgan To Raise Deposit Rates for Institutional Clients

I spoke too soon last week when I reported that bank deposit rates were unlikely to follow fed rate hike anytime soon. According to the Wall Street Journal, “J.P. Morgan Chase & Co. will raise deposit rates for some of its biggest clients in January, according to a person familiar with the matter.”

This isn’t surprising when you consider that US Banks currently hold over $10.7 trillion in domestic deposits, a figure found in the FDIC’s Quarterly Banking Profile released in September. This excludes $1.4 trillion in foreign office deposits and other non-FDIC insured banks.


LOANs outstanding

With those numbers combined (12.1 trillion) and only $8.64 trillion in loans outstanding, this means only about 71% of domestic deposits are outstanding loans. In other words, there is an excess of $3 trillion dollars in deposits. Here’s what $1 trillion looks like, by the way.


This leaves little incentive to pay extra interest on this excess cash. There is, however, an incentive to keep institutional clients from withdrawing their cash, which is why these deposit rate increases will only apply to operational accounts. Operational accounts are considered “sticky”, making them less likely to be removed during a crisis or lost to a competitor. Think of what a hassle it is to update all your online subscriptions when you get a new debit card. Now scale that headache to a corporate level.

Other large banks have been slow to respond and retail clients should continue to expect the same unhurried change in their deposit accounts.

WSJ: J.P. Morgan to Increase deposit Rates for Some Big Clients in January






Bank Deposit Rates Unlikely To Follow Fed Rate Hike Anytime Soon

interest rateLast month I received a call inquiring about interest rates on a money market account. I glanced at our rate sheet and informed this potential client that we were currently offering a whopping quarter of a point.

“So basically nothing?”, he asks and proceeds to hang up.

After a decade of a zero-rate environment and several months of the Federal Reserve flirting with the prospect of raising rates, it decided December 16th, 2015 to raise it’s key interest rate by 0.25%. The delayed decision came after China’s decision to unexpectedly devalue its currency, causing stock market volatility globally, and reports of a sluggish American economy.

Not surprisingly, Wells Fargo announced in a news release that “it is increasing its prime rate to 3.50 percent from 3.25 percent, effective tomorrow, Dec. 17, 2015.” Other banks reacted similarly, including U.S Bancorp, JPMorgan Chase, M&T, and PNC. Although bank loans are not directly linked to the federal funds rate, they do have a close relationship.

While the recent rate hike is a good indicator of a strengthening economy, it may not immediately be a good sign for savers. Despite the immediate adjustment to the loan rate, there is no indication that banks will pass this increase in revenue to account holders in the form of deposit rate increases any time soon.

However, this is not the case for all banks. Dan O’Neill, President of First National Bank of Omaha, raised interest rates on certain deposit products shortly after the Federal Reserve’s announcement. The quick response came as a way to attract depositors in anticipation of loan growth in 2016.

“I anticipate next year to have increased loan growth, so we will need deposits to fund those loans. It’s as simple as that,” O’Neill shared in an interview with the Omaha World-Herald.

This strategy is likely to be mirrored by other smaller banks as well as online banks such as Ally. These institutions need deposits to drive loans, while large banks remain cash flushed due to anxious investors that chose the security of a savings account in the face of market uncertainty. That security came at the cost of low interest rates. Average yields on one-year CDs, a popular product among retirees, dropped from nearly 4 percent in 2006 to 0.3 percent this month, according to

U.S. Fed Chair, Janet Yellen, echoed these concerns in a press conference held this summer, saying, “From the point of view of savers, of course, this has been a very difficult period.”

Consumers can expect a slight increase in rates on products such as credit cards, mortgages, and home equity lines of credit across the board. Any immediate expectations for deposit rate increases will be best served by smaller financial institutions.

CNBC: Fair? Banks hike prime rates, but not deposit rates