Americans Are Moving Their Hard-Earned Cash Into Higher-Yielding Financial Products

People have increasingly grown weary of the low interest on deposits offered by banks and have now poured a record $6.15 trillion into money market funds.

Americans are shifting their money into higher-yielding financial products as US banks struggle to prevent deposit flight amid the Federal Reserve's interest rate hikes, according to recent data.

People have grown tired of the low interest rates offered by banks on deposits and have now poured a record $6.15 trillion into money market funds, reports the Financial Times, citing data from the Investment Company Institute.

That represents a $2.45 trillion increase since January of 2020.

The Federal Reserve’s repeated interest rate hikes have enabled the funds to offer rates of 5% or more, which is more than 5X what basic checking accounts typically offer.

Meanwhile, to stay competitive, US banks are beginning to pay significantly higher rates, which is having a direct impact on their net interest income (NII).

New numbers show Wells Fargo, Citigroup and Bank of America all witnessed declines in their NII in Q2 of 2024.

Specifically, Wells Fargo posted a 9% drop in NII for the quarter, marking the lowest level in two years. Citigroup and Bank of America each reported a 3% drop.

A surge in investment banking and trading is boosting returns at the big banks, which is shielding lenders from the drop in NII.

The Federal Reserve has raised its benchmark interest rate 11 times between March 2022 and July 2023 to a range of 5.25 to 5.5%, a peak not seen in two decades.

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