The article Wealthier Depositors Pressure Banks to Pay Up explains how the large financial institutions in the United States are starting to pay up the wealthier depositors so that to retain and prevent them from moving their money elsewhere. This is the most recent sign that clients have continuously become more demanding even as the economic recovery takes hold. According to the article, there has been an increase in the average rate that the largest banks in the United States pay based on the interests from deposits. The article notes that since the year 2012, the biggest increase in the average interest rates paid jumped to 0.40% this year. Customers have become more sophisticated, and they are weighing other alternatives for holding their cash including options such as money markets funds that offer higher rates than what banks are paying on deposits. As a result, banks have continued to come under pressure to increase their interest rates or risk losing competitive advantage to other sought options.
After a review of the third quarter results by bank executives, they noted that wealth-management clients were the primary source of the pressure for the higher rates. They specifically pointed out that well up individuals and families who consider their deposits as part of their investments led to the high pressure that banks are experiencing. According to the review of the third quarter results, wealth management deposits registered a decline at the giant banks for the first time in many years. For example, at Bank of America Corp., J.P. Morgan Chase & Co., and Wells Fargo & CO., wealth management deposits declined by 4% in one period although the overall deposits grew by 5%. The article also notes that most banks prefer their clients' money being on deposit accounts rather than investments accounts since funds in deposit accounts are more freely available for the bank to use in investing in high-loan margins than funds in similar investment products offered by the banks.
Loan interest rates are increasing by the day. However, for a long time banks have been reluctant to raise interests on customers deposits. However, in the wake of increasing competition in the banking industry and other investment options, wealthy depositors have threatened to move their money to other alternatives leading to a dilemma to the banks (Dufries 16). Customers are no longer willing to tolerate the banks' tendency of keeping the interest rates on deposits low. Nevertheless, banks can manage this pressure by depositors only by offering other services such as easy and flexible payment systems that will shift the attention of depositors from the interest rates they earn to the convenience they receive from the services offered by the banks.
Dufries, Courtney. Ten Lessons Bankers Never Learn: How Banks Operate and Why Bankers Screw Up. , 2011. Print.
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