US banks saw record $2 trillion rise in deposits since coronavirus outbreak

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US banks have seen a record $2 trillion in deposits since the coronavirus pandemic reached the US, totaling $15.47 trillion in total deposits as of June 10, according to the FDIC. That’s up from a total of $13.3 trillion at the end of February.

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Banks saw an influx of $1 trillion in deposits in Q1 2020 alone, compared with $260 billion in Q4 2019. And in April, deposits grew by $865 billion — higher than the previous record for a full year’s worth of deposits, per CNBC. These deposits are heavily concentrated among the top 25 US banks, which saw two-thirds of the total gains, and even more so among the biggest banks, namely JPMorgan Chase, Bank of America, and Citi. Chase saw the highest increase early in the year, with its deposits increasing 19% between Q4 2019 and Q1 2020. 

This unprecedented level of deposits was largely driven by three major efforts in response to the coronavirus pandemic:

• Over $500 billion in emergency relief loans has been funneled to businesses through the Paycheck Protection Program (PPP). Banks facilitated these loans on behalf of the government, and many prioritized their own customers in doing so, per CNBC. This meant that most of the funds they lent through the PPP went into bank accounts of their existing customers.
• Stimulus checks and unemployment benefits drove the personal savings rate up. The US personal savings rate — savings as a percentage of disposable personal income — hit a high of 33% in April, reaching $6.15 trillion, according to the Bureau of Economic Analysis. The government began distributing its $1,200 stimulus checks in mid-April, and combined with reduced consumer spending due to lockdown measures, the savings rate spiked. And for some consumers who collected unemployment benefits, the checks combined with the benefits totaled more than their regular income, which also contributed to the increase in personal savings.

Further reductions of already low interest rates on savings accounts will be an immediate outcome of this influx of deposits. The Federal Reserve slashed its interest rate target to nearly zero as part of its emergency response to the pandemic, which has created an environment in which high-yield savings accounts are a detriment to profitability for banks. That’s led providers to cut their own rates — Goldman Sachs’ annual percentage yield on its Marcus high-yield account has fallen progressively from 2.15% in July 2019 to 1.05% today, for example.

While still considerably higher than the national average interest rate on a standard savings account of 0.06%, continued record levels of deposits will make it difficult for banks to return to pre-pandemic rates anytime soon. That bodes poorly for customer acquisition efforts, especially for banks that differentiate themselves based on their high-yield accounts. Banks will need to offer other incentives to bring in new customers until their bottom lines can handle raising rates again.

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