Instead of Tiny Savings Interest, US Wealthy Shift Money to Government Bonds and MMFs... 'Money Move'

Despite Fed Rate Hikes... US Banks Slightly Raise Deposit Rates
Funds Flow into Bonds, MMFs, and CDs with Annual Yields of 4-5%

[Asia Economy Reporter Haeyoung Kwon] Among wealthy American asset holders, a 'money move' is gaining momentum, shifting funds from bank deposits to high-yield government bonds, money market funds (MMFs), and other instruments. This is because large banks are barely raising deposit interest rates despite the Federal Reserve's (Fed) sharp hikes in benchmark interest rates.

On the 24th (local time), The Wall Street Journal (WSJ) reported that "wealthy clients are withdrawing money from banks that pay 'meager' interest."

According to the media, government bonds, MMFs, and certificates of deposit (CDs) offer annual yields of 4-5%. In contrast, the deposit interest rate for regular savings accounts stands at only 0.33%, based on data from the Federal Deposit Insurance Corporation (FDIC). In fact, Bank of America (BoA) paid 0.06% interest to individual customers and 0.88% to corporate customers in the fourth quarter of last year. Although the Fed raised the benchmark interest rate by 4.25 percentage points last year, banks' deposit interest rates have effectively remained flat. Consequently, wealthy asset holders are busily seeking investment destinations to move the savings accumulated during the COVID-19 pandemic into financial products offering higher returns than deposits, WSJ reported.

[Image source=Reuters Yonhap News]

Jason Goldberg, an analyst at Barclays Bank in the UK, analyzed, "Every time the Fed raises the benchmark interest rate, the opportunity cost of keeping money in low-yield accounts increases," adding, "Investors with additional cash are moving more actively."

Gary Zimmerman, CEO of MaxMyInterest in the US, said, "When interest rates exceed 1%, investors start seeking financial advice on where to invest," and added, "Now that the benchmark interest rate has surpassed 4%, investors are busily moving to find investment destinations."

However, ordinary individual customers who are not high-net-worth individuals do not have much capacity to invest. BoA's deposit size in the fourth quarter of last year, including Merrill Lynch's asset management division, was $342 billion (approximately 422 trillion KRW), down 17% compared to the same period the previous year. Deposits from ordinary individual customers amounted to $1 trillion (approximately 1,233 trillion KRW), also decreasing by 0.6%. Brian Moynihan, CEO of BoA, recently explained during a conference call, "Wealthy customers invest in MMFs and bonds, but typical individual customers have almost no additional capacity to invest."

This content was produced with the assistance of AI translation services.