May 02, 2023

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Good day. While interest rates have increased significantly over the last year, many banks still lag far behind the competition. Can you guess what the average U.S. savings account rate is today? a. 1%, b. 0.5%, c. 0.25%. Follow the wave 🌊 below for the answer.

Here are the topics for today:

Depositors Are Becoming More Prudent Than Ever
How Big Banks Rode out a Tumultuous Quarter
Getting Paid to Upgrade Your Home

ECONOMY

Depositors Are Becoming More Prudent Than Ever

A largely unforeseen spree of bank runs in 2023 has driven a wave of skepticism amongst depositors, and maybe for good reason.

Amidst the uncertainty that shrouds regional banks at the moment and the fact that higher yields are often found elsewhere, banking customers aren't just blindly handing over their cash anymore — banks have to work for it.

What do you mean?

Deposit drop: Big name regional banks reported earnings recently, and their results showed declining deposits, almost in unison. Over the last month, the 25 biggest U.S. banks have added $18B in deposits while banks below that size lost $212B. In short, the threat of a banking crisis combined with elevated yields at competitors is driving some depositors at regional institutions to take their money elsewhere.

Lackluster rates: The fact of the matter is that regional banks simply aren't able to keep up. Fifth Third is offering depositors just 0.01% APY — that tells you a lot. Essentially all other regional banks like Citizens, KeyCorp, U.S. Bank, are doing the same.
Deposits matter: Deposits are the lifeblood of the banking industry — the source of their business activities. Deposits also serve to protect banks against a run on the bank or liquidity issues.
Further complications: We've become more aware of threats to the financial system over the last 2 months, and this is another dot on the horizon to watch. With depositors fleeing, regional banks are being forced to offer higher interest rates to attract them back. As a result, their costs increase, net interest income declines, and profitability outlooks get degraded.
Is it a big deal? Probably not, but like we said, it's a dot on the horizon to watch for. For most banks, this is yet another challenge of the Fed's aggressive rate hikes. Fifth Third's CEO sees "no crisis inside our four walls" and the same can likely be said for others in the long run. Things should smoothen out eventually, but there may be a few local cases that have more liquidity issues amidst the possibility of stricter deposit requirements.

Take this related lesson and earn 🟡 Dibs:

Saving More

Budgeting & Saving

8 mins

MARKET OUTLOOK

How Big Banks Rode out a Tumultuous Quarter

It's earnings season yet again, and a great deal of the attention has gone to the banking sector as a few players have stolen the show. After a few bank runs, bail outs, and fear of contagion, it's fair to say investors and depositors alike have been on edge — but what do the reports say?

Takeaways from the big players' reports

Deposit gold rush: Deposit flows have been anything but equitable in the wake of the collapse of SVB, Signature, First Republic, and the wavering of others. Smaller regional banks have suffered losses as depositors flee to bigger, perhaps "too big to fail" institutions. In the aftermath of the chaos, JPMorgan raked in over $50B in new deposits while Citigroup brought in $30B, and BofA had a similar outcome.
Credit crunch: Things are more expensive than ever, homes are far from affordable, and U.S. citizens are being forced to take on more debt. As a result, there's a credit crunch happening beneath the surface. America's four biggest lenders wrote off a combined $3.4B in consumer debt in Q1, a 73% spike from one year ago. Is this a crisis? Probably not, but it's certainly a sign of the times.
Rates shoring profits: As the Federal Reserve has continued to raise rates and keep them there, big banks are also continuing to reap the profits of the spread. JPMorgan saw their net interest income pop by 49% in the first quarter, Wells Fargo by 45%, and Citigroup saw an increase of 23%.
Better this time around: We haven't seen high profile bank failures like those we've seen recently for quite some time, but big banks seem to be assured that this is no financial crisis. Although several have now failed, big Wall Street banks took part in a $30B bailout effort to help save First Republic without help from any government institutions.
Going forward: We've seen a lopsided reaction to the banking chaos, with big banks reaping the benefits while smaller regional banks grapple with the ripple effects. This has been a natural response, and one that seems like it can be contained, hopefully leading to more improvements in the near future.

Take this related lesson and earn 🟡 Dibs:

Investing in Sectors

Advanced Investing

7 mins

FEATURING ZURP

Banking Doesn't Have To Be Boring

Recently named "one of the best new rewards cards of the year" by Benzinga, Zurp is on a mission to help consumers secure their financial future and live the life they always dreamed of.

With Zurp, you get a Zurp World Mastercard tied to a Zurp Cash account that pays up to 5.00% APY**. Zurp is a secured credit card, meaning you cannot spend more than you deposit into your account.

And unlike other credit cards that give users access to boring traditional rewards, Zurp focuses on rewards like festival passes, concert tickets, and even statement credits at your favorite stores.

Earn up to 8x points on dining, travel, rideshare and entertainment ⁰
Earn 3x Points on all other card purchases ⁰
Earn 1x Points on Rent ⁰
Use Zurp to build your credit, without a credit check¹
Earn 5.00% APY** in a cash account with no lockup*
Get FDIC* insurance and fraud protection
Earn access to exclusive events, product drops and other perks!

And there's no annual fee. Get started today.

MONEY TIP

Getting Paid to Upgrade Your Home

Who doesn't love getting paid to do something that benefits them? One of the most common ways of achieving this — tax credits. Sure, it might not be the same thing as being handed some cash for a hard day's work, but they still save us some money on our annual bill to Uncle Sam.

Now, thanks to the Inflation Reduction Act, homeowners can get in on some tax credits with qualifying home upgrades.

The details to know

Backstory: When Biden signed the IRA into law last year, one of the biggest narratives throughout was an effort to decarbonize and electrify America. As a result, it brought on a lot of new and updated tax incentives for qualifying upgrades and purchases that contribute to the U.S. going green.
Home credits: Some credits, like the energy-efficient home improvement credit, were amended by the bill, raising their limit from a $500 lifetime cap to a $3,200 annual maximum. Elsewhere, new credits like the residential clean energy credit were added with the provision of a tax credit covering 30% of the cost of installation on items like solar systems, fuel cells, geothermal tech, and more. The IRA also established 2 new rebate programs for certain homeowners as well.
Tips to act on this: Is it worth paying for an upgrade just for the tax credits? No, and we shouldn't use those credits as an excuse to upgrade something we can't afford. However, if you were already considering a qualifying upgrade and found that the savings would be worth it, these new tax incentives that start this year would be a great added benefit.

Take this related lesson and earn 🟡 Dibs:

Tax Deductible or Not?

Taxes

8 mins

🌊 BY THE WAY

💵 Answer: 0.25%. Despite the massive rate hikes and APY increases by many banks, the average savings rate across the US is still only about 0.25% (BankRate)
🏦 JPMorgan Chase takes over First Republic after biggest U.S. bank failure since 2008; JPMorgan will assume control of about $92B in deposits, $173B in outstanding loans, and $30B in securities (CBS)
🔐 ICYMI. Is your money safe? (Finny)
🦾 Stanford and MIT study: A.I. boosted worker productivity by 14%—those who use it 'will replace those who don't' (CNBC)
🎯 Finny lesson of the day: Rules of thumb are helpful guidelines when it comes to money and benchmarking. Here's a simple one to help you save more:

⚡ Saving Tip: The 1% Rule

Budgeting & Saving

0 mins

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Zurp Disclosures

⁰ – Rewards terms apply. See here: https://zurp.com/rt

¹ – It can take up to 60 days after your first repayment to report positive history related only to your Zurp Card activity, subject to your account remaining in good standing. On-time payment history can have a positive impact on your credit score, and late payment history may negatively impact your credit score. Even when we report positive credit history relating to your Zurp Card activity, your credit history and score may be impacted by your activity outside of your Zurp Card, as credit histories and credit scores are built by credit bureaus based on a number of factors, including the financial decisions you make with products outside of the Zurp Card.

* Banking services provided by First Pryority Bank, Member FDIC. Zurp, Inc is a financial technology company, not a bank. The Zurp card is issued by First Pryority Bank pursuant to license by Mastercard International®

** Annual Percentage Yield (APY) may change at any time without notice. Valid as of 3/20/23. No minimum balance to open. Fees may reduce earnings. Cardholders must make at least five point of sale transactions or receive one direct deposit in the same calendar month to earn advertised APY. Your Cash Account will earn 5.00% APY on your Monthly Average Available Balance up to $2,000, and any Monthly Average Available Balance in excess of $2,000 and up to $250,000 will earn 4.27% APY. Please refer to https://zurp.com/terms for more information.

About Finny

Finny is a financial wellness platform. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. Finny does not offer investment and stock advice.

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