Yahoo Finance Savers flock to credit card companies with their deposits
Financial institutions better known for their credit cards than bank accounts are seeing an influx of deposits as Americans seek higher returns on their savings.
During the first quarter of 2023, American Express saw deposits jump by 33% year over year, including inflows in the weeks following recent volatility in the banking sector. At the same time, Discover's deposits climbed a record 18%. Synchrony Financial — the issuer behind many store credit cards — also posted a 17% annual gain in deposits in the first quarter, while Capital One’s deposits increased 12%.
By contrast, Bank of America’s total deposits fell almost 8% year over year in the first three months of 2023, while Wells Fargo’s deposits fell 7% from the same quarter last year. CitiGroup’s deposits remained flat.
The move reflects the consumer’s desire to find higher-yielding deposit accounts, a trend that had been blossoming since last year and accelerated by the turmoil from the banking failures in March.
“People are feeling more comfortable going to online-only banks to chase higher returns and I, myself, moved from a big mega bank to an online only bank and have been very happy with the returns on it,” Matt Schulz, chief credit analyst at LendingTree, told Yahoo Finance.
‘A significantly better return’
As economic conditions remain volatile, some consumers are thinking carefully about where to put their money.
The big banks have been slow to up the yields on their savings accounts a year after the Federal Reserve embarked on its interest rate hike campaign to dull inflation. Credit card issuers, however, have been offering more attractive options that result in higher-yielding savings.
“It really does take something significant in order to get people to change their banks, because we don’t do that easily,” Schulz said. “It really needs to be a significantly better return, better service, credit card offer, or interest rates to get people to move and right now it appears we’re seeing that.”
Another example is Apple Card’s new high-yield savings account, which drew in nearly $1 billion in deposits before the end of its launch week in April.
Apple’s new product offers daily rewards with a savings account from Goldman Sachs, at an annual percentage yield, or APY, of 4.15%. That’s a rate that’s more than 10 times the national average, according to Apple. The account itself includes no fees and no minimum deposits or balance requirements, the company said.
By contrast, Wells Fargo’s Way2Save savings account offers an APY of 0.15% on all balances and requires a $25 deposit to get started.
“So many people are living … on a tight budget and if you can double the amount of the amount of return that you're getting on your savings — going from 2% to 4% or even if you just bring it up as a single percentage point, which you certainly may be able to do depending on your particular circumstances — it's a significant thing,” Schulz said.
“It may not may not change your life, but it may expand your financial margin for error a little bit."
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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