[nine_zeros]

> There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything?

Because if the bank doesn't give any interest, people will keep the money in either a competing bank that gives interest or in cash or in other instruments that pay interest.

What a full backstop removes from the interest is a risk premium. You already see that at Chase or BoA accounts. The risk premium is zero so the interest they pay is much lower than other banks. But this is where other banks get an opportunity to compete for deposits.

[ghaff]

The only "interest" I've gotten from a bank in probably decades is a free checking account which money can be deposited into and withdrawn from (via paper check or a couple different online payment mechanisms), the very rare notary service, and ATMs (also increasingly rare). I regularly sweep any significant excess cash to a brokerage account. I understand companies keeping larger pure cash accounts but how many individuals are keeping $500K in a bank deposit account?

[afiori]

Do people chose banks for interests rates in saving accounts?

Like do people make the financial decision to use saving account rather than stock/bonds/hedge funds as investments?

As far as I understand no reasonable bank anywhere offers interest higher than inflation.

[nine_zeros]

Yes, people do make such decisions. Why? Because they expect stocks to fall and bonds to expose them to interest rate risk. They'd rather keep the money liquid and ready to sweep in to buy assets.

People also use savings accounts for impending expenses. Human stuff such as pregnancy, kids, car repairs.

Parking money in liquid savings with 3.5% interest is a very viable hedging strategy for humans. Perhaps not for institutions.

[ghaff]

At least Bank of America is still effectively 0 interest (excuse me 0.01%) on savings accounts. I'm not sure why anyone would bother to maintain a separate account beyond a checking account buffer. My brokerage sweep account is over 4% right now and transfers can be done online and just take a few days.

I assume the only reason for the savings accounts is to convince some people that they can save at their bank without bothering with another account somewhere else. (And, of course, until recently money market sweep accounts paid very little as well.)

[afiori]

Is that 3.5% an actual figure or just an example? I admit that it is much higher than I would have expected (which was on the order of 0.1% ~ 0.01%), did SVB offer that kind of interests?

[nine_zeros]

https://www.nerdwallet.com/best/banking/savings-accounts

[ghaff]

I assume all of those are money market accounts like a brokerage sweep account as opposed to a regular bank savings account which, at my bank at least, are still paying 0.01%. Which may be a reasonable risk/reward tradeoff as 4% on, say, $100K isn't nothing.

[nine_zeros]

Those are really savings accounts. I myself created accounts in them to take the benefit.