Wealth Management Clients Ditch Low-Yielding Bank Accounts

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As the Federal Reserve hikes interest rates, wealth management customers are pulling out their cash reserves and investing them in higher-yielding instruments, according to news reports.

While the typical savings account earns a mere 0.33% interest rate, Treasury notes, money-market funds and brokered certificates of deposit are now paying between 4% and 5%, the Wall Street Journal writes.

The Fed’s rate-hike course means that “the opportunity cost of leaving idle cash in low-yielding accounts increases,” said Jason Goldberg, an analyst at Barclays, according to the Journal.

However, not everyone is seeking out better rates of return on their savings: Typical consumer-banking clients have less cash to play with, the Journal writes. Wealthier savers, meanwhile, have been moving cash into Treasuries and money-market funds, Bank of America Chief Executive Officer Brian Moynihan said on a call with analysts, according to the publication.

The bank saw consumer banking deposits drop 0.6% last year, to $1 trillion, the Journal writes, citing the firm’s fourth-quarter earnings released earlier this month.

Meanwhile, at Merrill Lynch Wealth Management, BofA’s wealth unit, cash deposits dropped 17% in 2022, to $324 billion, according to the publication.

Likewise, Wells Fargo’s consumer deposits fell 3% last year, but the firm’s wealth-management deposits plunged 28%, the Journal writes.

JPMorgan’s consumer banking deposits shrank 1%, and deposits in its asset and wealth management business fell 17%, according to the publication.

While the biggest risk with savers pulling out cash is for firms such as Charles Schwab, which relies on its customers’ cash for a significant portion of its revenue, banks are also trying to keep the money in by offering better rates to the wealthy, the Journal writes.

At BofA, consumer deposits earned merely 0.06% in the fourth quarter, and the bank paid 0.88% on U.S. interest-bearing deposits across all of its business segments, according to the publication.

Anyone opening a Merrill Lynch account with $100,000 or more, meanwhile, can get a 3.98% rate, the Journal writes.

JPMorgan offers a 3% rate on a one-year CD with less than $10,000 deposited, and it offers 3.75% for $100,000 or more, according to the Journal.