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Insights into Deposit Growth and Low Rates from Wells Fargo's CEO

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Wells Fargo Bank

One would think that if a bank offers very low deposit rates, deposits would fall. In today's world that's not the case. In an interview by FORTUNE Magazine, Wells Fargo CEO, John Stumpf, described the high deposit growth that Wells Fargo has been experiencing:

we think there's something between $1.5 trillion and $2 trillion on businesses' and consumers' balance sheets that is sitting in our vaults. I've never seen it like this before. I've never seen the deposit growth the way we have it, and it's not because the yields are so high. It's security.

As Stumpf mentioned, the deposit growth isn't due to high rates. I took a look at Wells Fargo's rates. Its High Yield Savings Account pays a top rate of only 0.15%, and that requires a $25K balance and a PMA Package relationship. The highest CD rate is only 0.80%. This is a special 58-month CD.

Not only are deposits up, but loans continue to be down as compared to deposits. That's another thing depressing rates. According to Stumpf:

We typically run our company with about $1 of loans for every $1 of deposits. Today we're in the 80% range -- we're about $200 billion short of loans.

Stumpf described why he thinks they are short of loans:

there's a cautiousness because people are unsure about tax policy, about what's going on with the fiscal cliff, regulation, and a bunch of other things.

I think this uncertainty also applies on the deposit side. The Fed Chairman Ben Bernanke admitted early this year that "part of the reason for the [zero interest rate] policy is to move people away from very conservative liquid positions slightly more into riskier positions." How much of the stock market gains have been due to the Fed's policy? Is there a stock market bubble that may be on the verge of popping if things like the fiscal cliff aren't resolved? Earning zero percent is still much better than a negative 50 percent return like what we saw in 2008 and 2009. There are similar worries about a bond bubble and commodity bubbles.

Another question is why so many people are keeping their money at Wells Fargo and other big banks rather than at internet banks and credit unions where they can receive higher interest rates. In my opinion, the low interest rate environment makes interest rates less important. In this kind of environment, there's not much advantage of moving your money from Wells Fargo to an internet bank. By moving your money, you should be able to get at least an extra percentage point in your deposit rates. But that's only $100 for a $10,000 deposit over one year. When internet banks were paying 5% rates, moving your money could result in an extra 4 percentage points in your deposit rates. That's $400 for each $10,000 of deposits over one year. In summary, a low interest rate environment provides less incentives for rate chasing.

Have you kept more money at large banks like Wells Fargo in the last few years? Has it been due to safety issues? Or has it been due to diminishing returns of rate chasing?

  Tags: Wells Fargo Bank

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Comments
13 comments.
Comment #1 by Anonymous posted on
Anonymous
If you have $100k or more you don't need to touch, it still makes sense to pounce on comparatively good deals like the ones Pentagon Federal and Constellation recently offered. Otherwise, the after tax benefits of rate chasing are negligible.

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Comment #3 by Anonymous posted on
Anonymous
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Dear Mr Tumin,
 

>> There are similar worries about a bond bubble and commodity bubbles.

For the people who want to get better interest rates (yields), bursting of (any) bubble in bond will be, shall I say, a 'windfall', rather than an 'albatross'.  ... So, perhaps it should be less of a worry and more of a hope, I'd guess.

I know of many who have taken advantage of low interests and locked their mortages at low fixed rates.  Possibly such folks will be at a relative advantage, if the so called bond bubble were to burst.  Their mortagege rates won't go up, but is is very likely that they will get an opportunity to buy Certificates / CDs /I-Bonds / T-Notes/ T -Bills / T-Bonds at progressively higher yields, as the so called bond bubble bursts.

We'll have to wait and watch what happens.

Yours Truly,

- Anonymous

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Comment #4 by Anonymous posted on
Anonymous
I have a business account at Wells Fargo & keep just the bare minimum there in order to avoid monthly service fees. But then I'm not typical, because outside of that account & my personal checking account at Chase, I have zero dollars in CDs or other FDIC insured accounts. Yes, that's right, zero dollars. 

1
Comment #5 by Scott (anonymous) posted on
Scott
"The Fed Chairman Ben Bernanke admitted early this year that "part of the reason for the [zero interest rate] policy is to move people away from very conservative liquid positions slightly more into riskier positions." How much of the stock market gains have been due to the Fed's policy? Is there a stock market bubble that may be on the verge of popping if things like the fiscal cliff aren't resolved? Earning zero percent is still much better than a negative 50 percent return like what we saw in 2008 and 2009. There are similar worries about a bond bubble and commodity bubbles."

Been saying all along that the above is going to lead to a meltdown much bigger than what we saw in 2008 and 2009. Market is being artificialy inflated with these low rates but will eventualy crash, when that happens people will lose a good portion of their money and we see defaults on everything rise dramaticaly. We might not go off the cliff this month but it is coming 

5
Comment #6 by Anonymous posted on
Anonymous
Trust me, there will be no fiscall cliff fall. There will be a deal struck. Taxes will go up on $1 million and up earners. No, the tax increase will do nothing whatsoever to lessen the deficit.  Yes, both the stock market & bond market are being artificially propped up. No the bubble will not burst until everyone is convinced that the danger of it bursting  has receded dramatically.

So let's all keep talking about it popping, for that is absolutely the best insurance that exists to prevent the bubble from actually bursting. 

 

1
Comment #7 by Anonymous posted on
Anonymous
Its incredible to me that the banks with the longest lines are the ones paying the lowest deposit rate...e,g,...Wells Fargo, Bank of American, Chase.........I have money money market accounts with Amtrust, Great Florida Bank, BankUnited, Mercantile and and i'm getting 1.1%, .85%, .75% and 1.1% respectively........and i almost never have to deal wiith long teller lines or long drive-thru lines.........

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Comment #8 by Anonymous posted on
Anonymous
Don't be dumb enough to deposit funds with the big banks including wells fargo.  They are also the ones with the most onerous fees.

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Comment #9 by Scott (anonymous) posted on
Scott
we need those people to put all that money into big banks, if their money started flowing into the banks we use for deals, rates would go to nothing

4
Comment #10 by pua posted on
pua
Congress, and some of the larger states that have horrible deficits, will probably start imposing a wealth tax within the next few years.  Not income tax, not value-added tax, but wealth tax -- a percentage of your net worth every year.  The only way to avoid it would be to start pulling money out of banks and stocks and putting it into cash under the mattress, before they start keeping track of how much you have in the bank.

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Comment #12 by Anonymous posted on
Anonymous
#10...........Please! The moment after this country imposes your so called "wealth" tax, is the mmoment in which people with real "wealth" start moving their wealth overseas. That idea is self defeating.

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Comment #11 by Anonymous posted on
Anonymous
pau, it's a little late for that.  They have been tacking all deposits for years.  They already know how much everyone has on deposit in all the banks and CUs.  That is why Bernanke and the Feds are trying to force the money out and into the stock market.  Then the big financial institutional players can grab it. 

4
Comment #13 by Scott (anonymous) posted on
Scott
Since i'm retired now I can control what income I show. If rates go much lower might just pull most of it out of banks and put in things that don't report yearly income. Will then take advantage of the entitlement system people voted in, will be fun pulling up in my R8 and buying with foodstamps. 

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Comment #14 by Anonymous posted on
Anonymous
A lot of people aren't banking wonks, so they don't investigate interest rates like the readers of this blog. I also don't know many people who have the material leisure to concern themselves with managing huge amounts of cash. Most of their money is spoken for when its received and the fees don't matter as long as the checks don't bounce. It's also more convenient to drive up to the nearest branch to use the ATM. Wells Fargo has an impressive number of them in the area were I reside. In fact, there are no less than eight branches of various banks clustered in abot two square miles. in contrast, I have to drive ten miles to my nearest credit union. So, it's no surprise that the big banks are doing well despite offering miniscle interest rates.

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