It’s been well-documented that consumer spending is down. Some consumers are spending less, quite simply, because they’re among the many members of the middle-class who suddenly find themselves with less money to spend. Others are spending less because, given the fragile, uncertain state of the economy, they feel compelled to save more. Banks are being flooded with deposits as a result, but guess what? They don’t want your money.
You might understandably assume that banks always take a more-the-merrier approach to customer deposits, and that therefore, they’d be happy that money held in commercial bank checking, savings, and money market accounts increased 10% over the past three months. But you’d be wrong, reports the Los Angeles Times.
Banks don’t exist simply to hold their customers’ money. Their purpose is to make money, and right now, as odd as it may seem, banks are implicitly sending the message that they’d prefer it if many customers would take their money elsewhere:
“Banks and credit unions are doing everything they can to get rid of the cash except make loans,” said Mike Moebs, a Lake Bluff, Ill., banking consultant.
He said banks are driving away deposits by refusing to renew CDs at higher rates and by imposing fees on checking accounts for depositors who don’t use other, profitable financial services as well.
Years ago, amid the housing boom, banks eagerly sought funds that could then be loaned at high interest rates to real estate investors and would-be homeowners seeking mortgages. Now, however, lending standards are more restrictive, and banks are swimming in more money than they want or know what to do with. Deposit insurance premiums increase for banks as they hold onto larger and larger amounts of cash, and so, increasingly, customer deposits are coming to be seen as a cost for banks, not a means to make money.
To discourage deposits, banks are paying next to nothing in interest on CDs and savings accounts. Some banks have even begun charging fees simply to hold sizeable deposits (over $50 million) made by big institutional clients.
On the smaller level of the individual consumer, what’s interesting is that nowadays banks make more money from customers who keep smaller account balances. Customers who live paycheck to paycheck and don’t have emergency accounts are much more likely to pay monthly bank fees for failing to reach minimum-balance requirements in checking and savings accounts. They’re also more likely to be hit with overdraft fees when they keep swiping debit cards while their account falls into a negative balance.
These fees are huge money makers for banks. And yet, the way these fee structures are set up, they encourage customers to maintain larger balances. With more money in an account, the customer is less likely to encounter minimum-balance requirement fees and overdraft charges.
So which is it? Do banks want customers to deposit more, or deposit less? Naturally, banks want more of the money that customers hand over and won’t ever get back (i.e., fees). As for the money a customer deposits with the idea he’ll take it back someday, in full or perhaps even after it’s grown a bit in value? Well, in that case, lately banks seem to be sending the message: Why don’t you just keep that money in the first place.
This isn’t the case with all banks, however. Many online banks and credit unions have higher interests on deposits (relatively speaking) and minimal fees. These financial institutions are still happy to accept and hang onto all the money customers want to deposit — the more the merrier.