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Does Good News for Banks Mean Good News for Savings and Money Market Accounts?

November 29, 2010

| MoneyRates.com Senior Financial Analyst, CFA

The FDIC's Quarterly Banking Profile announced some good news for the banking industry. The good news for banks might also translate into good news for savings accounts, money market accounts, and other deposits.

The Quarterly Banking Profile is a comprehensive report on the aggregate financial health of FDIC-insured institutions. According to the most recent report, that health is getting decidedly better.

Bank profits up

Overall, bank profits have soared over the past year, from $2 billion in the third quarter of 2009 to $14.5 billion in the third quarter of 2010. 63.3 percent of the FDIC's 7,760 insured institutions reported higher net income in the third quarter than they'd had a year earlier.

With this profitability, banks are shaking off some of the ill effects of the financial crisis. Non-current loans -- those on which payments have fallen seriously behind -- declined for the second consecutive quarter. Prior to the last two quarters, non-current loan balances had risen for 16 consecutive quarters.

Tellingly, only 18.9 percent of FDIC-insured institutions reported being unprofitable. This is down from 27 percent a year earlier, and represents the smallest percentage of banks with negative net income since the second quarter of 2008.

What's in it for savings and money market rates

While bank profits were soaring, amounts on deposit experienced only 1.5 percent growth, and time deposits (money in accounts like CDs which are committed for a set period of time) declined for the seventh consecutive quarter.

These trends will come as no surprise to anyone who is familiar with the low levels of bank rates these days. Savings and money market rates give customers scant reason to deposit money, and in particular people are reluctant to lock money into a CD at the current low rates.

Improved profitability might help change this. Deposits help fund bank loans and investment activity. When those areas became unprofitable, banks had little incentive to attract deposits. Now that lending is recovering and investments are doing well, attracting more deposits can help banks grow profits.

This could be the first step towards banks offering higher CD, savings, and money market rates.

Your responses to ‘Does Good News for Banks Mean Good News for Savings and Money Market Accounts?’

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29 November 2010 at 12:40 pm

Yeah sure, any day now!

btw has uncle Ben's chopper crashed yet?

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