3 ways the banking crisis could change the way you bank
Many consumers are feeling nervous about the security of their funds in the bank after witnessing the demise of Silicon Valley Bank (SVB) and Signature Bank in March, as well as the collapse of First Republic Bank in May. In fact, more than one-third (34 percent) of consumers who are aware of recent bank failures report feeling “very concerned” about the U.S. banking system, according to a recent J.D. Power survey.
Despite consumer fears, a savings account at a federally insured bank remains one of the safest and most accessible places to store your cash. Although your money is safe in your bank — if your bank is insured by the Federal Deposit Insurance Corporation (FDIC) and you’re within the FDIC’s guidelines — there are several ways the recent banking crisis could, in fact, change how you bank.
Here we’ll look at three potential ways banks could evolve as a result of the 2023 banking crisis.
1. Smaller banks may increase yields
If you’re looking to find the best rate on a high-yield savings account, be aware that some smaller and midsize banks and credit unions may be increasing their annual percentage yields (APYs) as a result of the banking crisis. Banks of this size lost billions of dollars after the SVB, Signature and First Republic failures as customers took their deposits to larger banks, which they perceived to be safer.
Increasing their APYs on savings accounts, money market accounts and CDs could be a way smaller banks attempt to draw back customers — and to avoid losing any additional existing ones.
Advice: Now’s a good time to shop around for the best rates. You’ll often find the best APYs offered by banks that only maintain an online presence, since they don’t have the overhead costs of maintaining branches and can pass along the savings to customers in the form of higher rates.
2. Banks could increase their fees
When federal regulators seized Silicon Valley Bank and Signature Bank, they determined that in addition to covering insured deposits at both banks, they would also cover the substantial portion of deposits that were uninsured.
The FDIC currently insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Consumers are guaranteed that their money is safe, as long as it’s within those limits and guidelines.
If, as a result of the banking crisis, the FDIC decides to start providing unlimited insurance coverage to all depositors, the agency may charge banks considerably more in insurance premiums — which in turn could lead to banks increasing their depositor fees to fund those price hikes.
Advice: Regardless of whether your bank is increasing any of its fees, it’s good practice to monitor your bank accounts regularly and pay attention to any fees you’re being charged. Common bank fees include overdraft fees and ATM fees. Such fees — often referred to as junk fees by consumer advocates — can be avoided if you maintain a set minimum account balance, set up safeguards to help prevent overdrafts, and make sure you only use in-network ATMs. If your bank makes it too difficult for you to avoid such fees, you may want to consider switching banks.
3. Banks are tightening lending practices
Banks might further tighten their lending practices in response to the recent bank failures, U.S. Treasury Secretary Janet Yellen said in an interview on CNN on April 14.
As many banks currently feel the need to achieve a healthier balance sheet, they may take steps such as raising interest rates on their loans, which would make it more difficult for consumers to do things like buy a car or make home improvements.
Retrenchment in bank credit actually began happening prior to the March bank failures, however. According to the Federal Reserve’s survey of banks’ senior loan officers released in November 2022, lenders made it more difficult for both consumers and businesses to access credit in the third quarter of the year.
In the survey, 80 percent of banks also said their lending standards for credit card loans would tighten either substantially or somewhat if a recession were to occur. Similarly, 74 percent of banks surveyed said their lending standards for auto loans would tighten substantially or somewhat in the event of a recession.
What’s more, regional banks have a general reputation for knowing their customers, since many are headquartered in the communities they serve. Such banks may consider factors such as family history and discretionary spending when making loans, instead of relying solely on impersonal data such as credit scores. This type of relationship banking may suffer when small banks are bought out by bigger ones.
Advice: Whether you’re looking to obtain a mortgage loan, an auto loan or another personal loan, shop around for the lowest rates. Use Bankrate’s loan calculator to help you determine what your monthly loan payment will be, and make sure it’s an amount you’re comfortable incorporating into your monthly budget.
Bottom line
It remains to be seen whether any more bank failures will take place in the near future, but consumers can rest assured their funds are safe as long as they’re within the insurance guidelines and limits at a federally insured bank or credit union.
The fallout from the banking crisis could result in some consumer-friendly practices such as higher yields on deposit accounts, while harmful by-products could be higher fees and loan rates. The best approach is to find a savings account that pays the highest yield, make sure you’re not paying bank fees that you can avoid, and shop around for the most favorable loan terms when you’re seeking to borrow money.
