Banks Profit From High Interest Rates but Stiff Depositors
With the help of the Federal Reserve, US banks are offering loans at higher rates than the interest they pay to depositors and pocketing the difference for themselves.
JPMorgan Chase charged roughly 7 percent interest for mortgages and 18 to 27 percent interest for credit cards in 2022 while paying its customers a .01 percent rate on a demand-deposit account — pocket change compared to the bank’s $128 billion in revenue that year. (Al Drago / Bloomberg via Getty Images)
With the help of the Federal Reserve, banks are offering loans at higher rates than the interest they pay to depositors and pocketing the difference for themselves.
This so-called net interest income is a wildly lucrative scheme for banks that’s only growing more profitable: a new Fed report finds that last quarter, banking margins “benefited from increasing yields on earning assets, particularly loans . . . [as] funding costs remained stable.” Effectively, banks are making more money off interest from loans while paying the same or less to depositors.
Recent data from the Federal Deposit Insurance Corporation, an independent agency that backs bank deposits, finds that the average interest rate US banks pay to depositors on their savings accounts is 0.4 percent, while the government pays those same banks 4.3 percent for loans.
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