Savings accounts, which have paid out almost nothing for the past decade, could get more interesting in 2018 as yields rise and investors scramble for the higher returns. That could be bad news for certain banks.
Savings account yields haven’t risen much since the Federal Reserve started raising interest rates. As the Fed keeps tightening in 2018, more banks will raise deposit rates and savers will respond by rushing to the banks that pay the most.
That is what happened in the last tightening cycle in the mid-2000s—banks moved slowly at first, gradually accelerating as rates moved higher. This time banks might have to be more aggressive because it is easier than ever for savers to move cash electronically to higher yielding competitors like Capital One and American Express.
Analysts at Keefe, Bruyette and Woods estimate that banks will pass along 34% of the rise in the Fed’s target rate to savers in 2018, up from 15% in 2017. As a result, most banks will still be net beneficiaries of higher rates. But the impact will be uneven.