Interest rates on bank deposits are reaching rock bottom, with major banks offering meager rates like Wells Fargo at 0.15%, Citibank at 0.05%, Chase, Bank of America, and US Bank all hovering at a mere 0.01%.
In contrast, alternatives to traditional bank deposits are offering significantly higher returns, with Certificates of Deposit (CDs) topping the list at 5.0%, followed by Money Market funds at 4.5%, and Treasury Bonds at 4.0%.
This stark contrast has triggered an unprecedented trend of deposit outflows from banks, totaling over $1 trillion in withdrawals over the past year alone.
The era of large US banks enjoying “free” money seems to be on the decline, and they are now faced with a crucial decision: either raise interest rates on deposits or watch their capital continue to drain away.
While banks grapple with this dilemma, money market funds are experiencing historic inflows, attracting approximately $900 billion in investments this year.
This shift marks a significant departure from the decades-long trend of low returns on cash, as cash is now emerging as a viable option to generate solid yields.
While banks have seen historic outflows, money market funds have seen historic inflows.
~$900 billion has gone into money market funds this year.
For the first time in decades, cash can provide a solid yield.
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— The Kobeissi Letter (@KobeissiLetter) September 19, 2023