Over $1 Trillion Has Left Traditional Banks. Here's Who's Pulling Their Money (2024)

It hasn't been business as usual for the big banks lately, and not just because of multiple bank failures. From April 2022 to May 2023, total deposits at commercial banks have fallen by just over $1 trillion, according to the St. Louis Federal Reserve. Considering deposits had been rising fairly steadily for the last 50 years up until then, that's a notable shift.

The most likely cause is that consumers can now earn a whole lot more interest by moving their money to high-yield banking accounts. This wasn't the case before, when interest rates were fairly low across the board. But because the Fed has hiked interest rates so much over the last year and change, there's now a huge difference between what traditional banks and online banks offer.

For example, the average savings account APY is 0.39%, according to the FDIC. The average checking account APY is even lower at 0.06%. On the other hand, if you put your money in a high-yield savings account, you could earn 4.50% or more. For $10,000 in deposits, that's a difference of more than $400 per year in interest.

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It's a great incentive to rethink where you store your money, if you haven't already. Now, let's look at what the research says to see who is and isn't pulling their money.

Who's pulling their money from traditional banks?

In February and March, 29% of bank customers said they'd moved deposits from their primary bank in the last 90 days, according to J.D. Power as reported by Forbes. Younger consumers were far more likely to have pulled their money.

Among those 40 and under, 38% reported moving money, and they took out an average of 43% of their deposits. Only 23% of those older than 40 moved money, and they moved an average of 35% of their deposits.

Anyone can benefit from putting their cash in an account with a higher interest rate. But right now, there are more millennials and members of Generation Z who are taking advantage of this opportunity.

How to decide where to park your cash

It's good to occasionally review where you have your money to check that you're getting a competitive return. And if you currently have your money in a traditional bank with a low interest rate, then this is something you should change right away.

As far as where you keep your money, there are many options available. Finding the right one will depend largely on how accessible you need that money to be.

For accessibility, consider these options

For cash you could need at any moment, it's best to stick to accounts that let you make withdrawals whenever you want. Options include:

  • High-yield savings accounts: These work like any other savings account, but they're offered by online banks, so they have much higher interest rates.
  • Money market accounts: These offer interest rates on par with high-yield savings accounts, and they also have the more convenient withdrawal options seen in checking accounts, such as debit cards or checks. The catch is that they often have high minimum deposit requirements.

For longer-term growth, consider these options

If you have money you won't need at a moment's notice, and you'd like to make it grow, the next factor to consider is your timeline. For funds you plan to use within about five to seven years, you may not want to invest in anything that could lose value, such as stocks. Fixed-income products are a good option here, and they include:

  • Certificates of deposit (CDs): These have a fixed interest rate and term. You must keep your money in the CD for the full term to avoid early withdrawal penalties. CDs are useful because they sometimes have higher interest rates than savings accounts, and you can lock in that interest rate, which protects you in the event that rates drop.
  • Bonds: These are debt obligations you can buy to receive interest payments on a regular schedule. Government bonds, such as Treasuries, are the safest option. There are also corporate bonds issued by companies that want to raise money.

All of the above are good places to put money that you aren't using for long-term investing. That includes your emergency fund and money you're setting aside for any savings goals, such as a vacation or a down payment on a home. No matter how long you end up holding on to this money, it makes sense to earn as much interest on it as possible.

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Over $1 Trillion Has Left Traditional Banks. Here's Who's Pulling Their Money (2024)

FAQs

Over $1 Trillion Has Left Traditional Banks. Here's Who's Pulling Their Money? ›

Total deposits at commercial banks fell by just over $1 trillion from April 2022 to May 2023. People 40 years old and younger are more likely to pull their money, with 38% of them reporting that they moved deposits compared to 23% of those over 40.

Why is everyone withdrawing from banks? ›

A bank run occurs when a large group of depositors withdraw their money from banks at the same time. Customers in bank runs typically withdraw money based on fears that the institution will become insolvent. With more people withdrawing money, banks will use up their cash reserves and can end up in default.

Can the government take money from your bank account in a crisis? ›

The government can seize money from your checking account only in specific circ*mstances and with due process. The most common reason for the government to seize funds from your account is to collect unpaid taxes, such as federal taxes, state taxes, or child support payments.

What happens to my money if the banks collapse? ›

If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.

How many U.S. banks are in trouble right now? ›

A report posted on the Social Science Research Network found that 186 banks in the United States are at risk of failure or collapse due to rising interest rates and a high proportion of uninsured deposits.

Can banks seize your money if the economy fails? ›

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

Are Americans pulling money out of banks? ›

A recent CNBC Select and Dynata Banking Behaviors Survey found that 40% of respondents who reported having withdrawn cash from their savings say they did so to cover fixed bills, such as a car payment. The second most cited reason, at 38%, was to cover variable expenses like groceries.

Should I take my cash out of the bank? ›

In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.

Should I take my money out of the bank before a recession? ›

Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.

What is the safest bank in the US? ›

Summary: Safest Banks In The U.S. Of April 2024
BankForbes Advisor RatingLearn More
Chase Bank5.0Learn More Read Our Full Review
Bank of America4.2
Wells Fargo Bank4.0Learn More Read Our Full Review
Citi®4.0
1 more row
Jan 29, 2024

Do you still owe money if a bank collapses? ›

So, no, your loans aren't forgiven if your lender goes bankrupt. You're still responsible for making payments, the only difference is that you'll be sending payments to another institution instead of the one that originally gave you the loan.

Will credit unions collapse? ›

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

What banks are in danger of failing? ›

7 Banks to Dump Now Before They Go Bust in 2023
SHFSSHF Holdings$0.50
WALWestern Alliance$27.32
ECBKECB Bancorp$11.24
PACWPacWest Bancorp$5.97
FFWMFirst Foundation$4.35
2 more rows
May 8, 2023

Which 4 banks are in trouble? ›

About the FDIC:
Bank NameBankCityCityClosing DateClosing
Heartland Tri-State BankElkhartJuly 28, 2023
First Republic BankSan FranciscoMay 1, 2023
Signature BankNew YorkMarch 12, 2023
Silicon Valley BankSanta ClaraMarch 10, 2023
56 more rows

What banks are collapsing in 2024? ›

2024 in Brief

There are no bank failures in 2024. See detailed descriptions below. For more bank failure information on a specific year, select a date from the drop down menu to the right or select a month within the graph.

What banks are most at risk right now? ›

These Banks Are the Most Vulnerable
  • First Republic Bank (FRC) . Above average liquidity risk and high capital risk.
  • Huntington Bancshares (HBAN) . Above average capital risk.
  • KeyCorp (KEY) . Above average capital risk.
  • Comerica (CMA) . ...
  • Truist Financial (TFC) . ...
  • Cullen/Frost Bankers (CFR) . ...
  • Zions Bancorporation (ZION) .
Mar 16, 2023

Should I withdraw money from the bank now? ›

In short, if you have less than $250,000 in your account at an FDIC-insured US bank, then you almost certainly have nothing to worry about. Each deposit account owner will be insured up to $250,000 — so, for example, if you have a joint account with your spouse, your money will be insured up to $500,000.

Should we take all your money out of the bank? ›

As long as your deposit accounts are at banks or credit unions that are federally insured and your balances are within the insurance limits, your money is safe. Banks are a reliable place to keep your money protected from theft, loss and natural disasters. Cash is usually safer in a bank than it is outside of a bank.

How safe are the banks right now? ›

Most deposits in banks are insured dollar-for-dollar by the Federal Deposit Insurance Corp. This insurance covers your principal and any interest you're owed through the date of your bank's default up to $250,000 in combined total balances. You don't have to apply for FDIC insurance.

Are people pulling money out of small banks? ›

But that hasn't stopped people from shifting their money around. Americans are moving hundreds of billions of dollars out of banks — especially smaller regional banks — into larger institutions, as well as money market funds, government bonds, high-yield online savings accounts, even cryptocurrencies and gold.

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