As Americans seek higher returns on their savings, financial institutions that are better known for their credit cards than bank accounts are seeing an influx of deposits. During the first quarter of 2023, American Express saw a 33% year-over-year increase in deposits, including inflows in the weeks following recent volatility in the banking sector. Discover's deposits climbed a record 18%, and Synchrony Financial, the issuer behind many store credit cards, posted a 17% annual gain in deposits. Capital One’s deposits also increased by 12%.
The move reflects consumers' desire to find higher-yielding deposit accounts, a trend that has been blossoming since last year and has accelerated due to the turmoil caused by banking failures in March. The big banks have been slow to increase 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.
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, is another example. The 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.
“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,” said Matt Schulz, chief credit analyst at LendingTree, adding that it takes something significant to get people to change their banks, because people don’t do that easily. “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.”
“So many people are living on a tight budget, and if you can double 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 change your life, but it may expand your financial margin for error a little bit."
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