America’s three largest banks raked in nearly $200 billion last year from higher interest rates, but have failed to pass on bigger returns to savers.
The Federal Reserve’s relentless tightening cycle has pushed interest rates to a 22-year high, increasing the amount JPMorgan Chase, Bank of America (BofA) and Wells Fargo can charge on loans to customers.
But analysis by DailyMail.com shows that all three have failed to raise the annual percentage rate (APY) on their basic savings accounts above 0.01 percent.
By comparison, those same banks typically charge between 5 and 7 percent interest on their thirty-year fixed-rate mortgages.
The companies have been put to shame by a host of smaller providers who now offer returns as high as 5 percent on standard savings accounts.
America’s three largest banks raked in nearly $200 billion from higher interest rates last year, but have failed to pass on higher rates to savers
In an earnings call last year, JPMorgan CEO Jamie Dimon admitted that the company was “making too much” on so-called Net Interest Income (NII) – the difference between what banks earn on loans and what banks pay out in deposits. He warned ‘we will have to change savings rates’
For example, fintech company SoFi – which requires no minimum deposit – has an APY of 4.6 percent on its accounts – 460 times as much as Wells Fargo, Chase or BofA.
It means that a saver with $1,000 in his account would have earned $46 in interest at SoFi by the end of a year — but only 10 cents at any of the other three banks.
Earlier this month, it was announced that JPMorgan Chase had posted the biggest annual profit in US banking history after netting $49.55 billion.
The earnings report shows that much of this is due to so-called net interest income (NII) – the difference between what banks earn on loans and what they pay out on deposits.
For the year, the company earned $89.7 billion in NII, up 34 percent from 2022. BofA earned $57.5 billion in NII, while Wells Fargo raked in $52.4 billion.
In an earnings call last year, JPMorgan CEO Jamie Dimon acknowledged that the company was “overearning” on NII and warned “we’re going to have to change the savings rate.”
However, so far the country has not been able to do this on its basic accounts.
It comes after it emerged that Capital One is being sued for misleading savings rates – after customers found out they were earning just 0.3 per cent instead of the more than 4 per cent they thought they were getting.
Personal finance experts said big banks have no incentive to raise interest rates because they don’t need to entice new habits.
Greg McBride, of personal finance site Bankrate, told DailyMail.com: ‘The largest banks have the largest market share and with market share comes pricing power.
‘These banks do not increase their savings interest rates because it is not necessary. But fortunately for consumers, there are many smaller banks that will welcome them with open arms and competitive rates.’
McBride said most savings account providers do not require a minimum balance. He advised customers to stick with accounts insured by the Federal Deposit Insurance Corporation (FDIC).
George Kamel, author of Breaking Free from Broke and co-host of Dave Ramsey’s radio program the Ramsey Show, warned savers that banks are “not their friend” and advised they should look for better returns elsewhere.
Earlier this month, it was revealed that JPMorgan Chase had posted the biggest annual profit in US banking history after netting $49.55 billion.
The Federal Reserve’s relentless tightening cycle has pushed interest rates to a 22-year high, increasing the amount JPMorgan Chase, Bank of America (BofA) and Wells Fargo can charge on loans to customers.
This week, Fed Chairman Jerome Powell confirmed the body was keeping interest rates steady at the current range of 5.25 to 5.5 percent.
He told DailyMail.com: ‘Regardless of the interest rate, savings accounts are not a wealth building tool.
‘That’s what long-term investing is for. When it comes to emergency savings, I recommend having 3 to 6 months of expenses in your emergency fund. Treat your emergency fund like insurance, not an investment.”
Banks are preparing to cut rates up to four times this year as the finale of the Fed’s tightening cycle comes to an end.
Fed Chairman Jerome Powell confirmed at the January meeting that the body was keeping interest rates steady at the current range of 5.25 to 5.5 percent.
But Moody’s Analytics still expects a rate cut in May, with three more to come before the end of the year.
It means banks are likely to take a hit to their NII profits in 2024, after a banner year in 2023. Wells Fargo said it expects a 7-9 percent drop in NII this year.
Spokespeople for both Wells Fargo and JPMorgan Chase pointed out that they offer Certificate of Deposit (CD) accounts with more competitive rates.
CDs are less flexible than standard savings accounts because they often come with a penalty if a customer wants to withdraw early.
Wells Fargo said the interest rate on the standard three-month fixed rate CD is 4.5 percent, while the seven-month fixed rate CD offers an APY of 4.75 percent.
JPMorgan Chase said: “We currently offer interest rates up to 5 percent on CDs. Unlike savings accounts, CDs are generally more attractive for long-term savings and are seen as a better alternative by our customers.”
Bank of America also offers CDs with rates up to 5 percent. The company declined to comment when contacted by DailyMail.com.