After news came out that Bank of America was going to add a $5 monthly fee for debit card usage, the movement to leave megabanks reached a new level of popularity. Credit unions have reported significant increases in new members this month. Next week may see even more people leaving their megabanks with Bank Transfer Day. This is a Facebook-driven campaign urging people to close their accounts at the megabanks and move their money to credit unions by November 5th.
With the megabanks controlling so much of the banking industry, anything to encourage people to move their money to credit unions and community banks should be helpful. However, it may not help deposit rates, at least in the short-term. This New York Times article describes one reason why we're seeing such low deposit rates: banks are awash in cash. The recent fears of a new recession only added to banks deposits as people moved their money from stocks into bank accounts. Here's how the NYT article described why the deposits are not helping the banks:
Lending levels have not bounced back from only a few years ago and the loans going out are not keeping pace with the deposits rushing in.
What’s more, the profitability of each new loan has shrunk. Because the Federal Reserve effectively sets the floor off which banks price their lending rates, its decision to lower interest rates to near zero means the banks earn less money on the deposits they lend out.
The banks are also earning less on the deposits left over to invest.
With more deposits going into credit unions and community banks, will we see our deposit rates fall? In my opinion, I don't think this will put more downward pressure on deposit rates. Most people involved in this move-your-money campaign are probably not big savers with lots of money in their bank accounts. Most will just be moving their checking accounts. Active checking account users are always looked upon as the most profitable customers.
An example of banks wanting new checking account customers can be seen with so many banks offering new-account bonuses. In fact, one of the banks mentioned in the NYT article, Hyde Park Savings Bank, is offering a checking account bonus. According to the article, Hyde Park Savings Bank has "lowered its C.D. rates this spring to encourage less-profitable customers to move on." Those without checking accounts are the ones they consider to be less-profitable. That's why their $100 bonus is for opening a new checking account.
With most people moving their checking accounts for the Bank Transfer Day, that should be good for credit unions and community banks, even for those which are awash in cash.
It might seem like the megabanks may raise their deposit rates to keep customers. However, their rates are so low now, even sizable rate increases will probably still result in uncompetitive rates.
Over the long-term, hopefully the megabanks will shrink while we see growth in the community banks and credit unions. This will make for a more competitive environment which should be good for savers in the future.
Bank Transfer Day Help
If you are looking for a credit union, my post on Finding the Best Free Checking Accounts at the Best Credit Unions should be useful. There are many credit unions, and they are not all equal. I described several features to look for in both the credit unions and in the checking accounts.
If you don't have any good credit union or community bank in your area, internet banks are another option. Please refer to my post Leaving Your Big Bank and Choosing an Internet Checking Account.