As banks charge higher interest rates on loans, businesses will be getting paid on deposits while individuals get the shaft
One of the primary reasons why banks stopped or severely curtailed paying interest on depositor accounts was because the Federal Reserve lowered interest rates to near zero percent following the 2008 finance crisis. ¬†But with the central bank having raised them four times since December of 2015, these same banks have summarily increased the rates of interest they charge to borrowers while at the same time doing nothing for the depositors whom they use to leverage most of their loans.
But that is soon to change for one class of depositors as new demands by businesses are causing institutions like Bank of America to give in to paying a modicum of interest on their business accounts, while still refraining from doing the same to regular individuals who have their checking and savings accounts in the same bank.
Consumers are giving banks a pass when it comes to shopping for higher interest rates on deposit accounts. Businesses, on the other hand, are becoming more demanding.
With short-term interest rates on the rise, corporate depositors are seeking bigger payouts for their deposits, and big banks have started capitulating.
The reason: Small rate increases are often worth just pennies to many consumers, but they can translate into meaningful dollars on large corporate deposits of millions or even billions of dollars.
And companies have greater leverage with banks since in many cases they also bring in lucrative investment banking and trading business.
‚ÄúThe jig is up,‚ÄĚ said James Gilligan, assistant treasurer at Kansas City, Mo.-based power company Great Plains Energy Inc. He said many companies, including his, have negotiated better deposit pricing with banks where they also borrow.¬†Treasurers who have the flexibility to move their money are also seeking out higher rates. –¬†Wall Street Journal
Like with education and medicine, banks for the most part ignore attempts by the public to negotiate contracts when they choose to put their money in a given institution. ¬†And prior to 2008, when many banks went out of their way to offer benefits such as free checking, today they no longer see your money as an asset, but instead as an unfunded liability.
With Congress and the DOJ both passing new laws and regulations to try to force individuals to give up control over their money and keep in full time in a bank that may one day confiscate it through a bail-in, there is little to no benefit to keeping one’s assets in these institutions, especially since there are now many alternatives to being able to store your wealth, and pay your bills outside the antiquated banking system. ¬†And as we are now seeing the banks prostitute themselves to the elite and big business over the common person when it comes to interest on deposits, you can rest assured that when it comes time to choose customers over the bank’s own interest, the answer is quite clear on who will be the winner and the loser in this event.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.