Rising Savings Are a Mixed Blessing for Banks

Savings increase bank deposits, but cut demand for consumer loans

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Panos Mourdoukoutas
Apr 21, 2021
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Pandemic lockdowns and stimulus checks have helped Americans save more money, a mixed blessing for banks. For instance, higher savings lead to more deposits, allowing banks to lend more funds. On the other hand, higher savings help households pay down credit card balances, which means less interest income for banks.

For years, Americans had record low savings rates. Personal savings as a percentage of disposable income hovered at around 10%, with a high of 15.3% in 1975 and 2.3% in 2005. The Covid-19 pandemic changed that, with personal savings reaching 26% of gross domestic product. Most of these savings ended up in banks, with deposits soaring from around $13.4 trillion at the beginning of the pandemic to $16.8 trillion in early 2021.

Higher deposits helped American households pay down the most expensive type of debt as well, credit card debt. Outstanding balances on bank-sponsored credit cards tumbled by roughly $115 billion between March 2020 and February 2021.

This change in household finances is reflected in the earnings reports of major banks released last week. Wells Fargo & Co.'s (

WFC, Financial) average deposits were up 21%, while its consumer loans were down 8%.

Bank of America Corp.'s (

BAC, Financial) deposits were up 25%, while loans were down 8%. Loan and lease balances in the business segment declined 7% to $887 billion, driven primarily by declines in commercial loans and lower card balances.

JPMorgan Chase & Co.'s (

JPM, Financial) average loans were down 2%, while average deposits were up 54%. Consumer & Business Banking net revenue was $5.6 billion, down 10%, driven by the impact of deposit margin compression, offset mainly by growth in deposit balances. Home Lending net revenue was $1.5 billion, up 26% on the back of higher production revenue, partially offset by lower net interest income on lower balances. Card & Auto net revenue was $5.4 billion, down 7% as a result of lower card net interest income on lower balances.

While it is unclear whether savings rates will remain elevated once the pandemic is over, one thing is clear: the problem for banks isn't attracting new deposits, but finding new opportunities to deploy their capital.

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I’m a Professor of Economics at LIU Post in New York. I also teach at Columbia University. I’ve published several articles in professional journals and magazines, including Forbes, Barron’s, The New York Times, Japan Times, Newsday, Plain Dealer, Edge Singapore, European Management Review, Management International Review, and Journal of Risk and Insurance.