American Savers Lose About $600 Billion a Year to Near-Zero Deposit Rates
He calls it a massive wealth tax, with lower-income savers paid less than high-income savers.
Invest Like the Best with Patrick O'Shaughnessy · David Vélez - Building Nubank and the Future of Global Banking - [Invest Like the Best, EP.495]American savers are giving up about $600 billion a year in interest to keep bank branches open.
The math, laid out by David Vélez, founder of digital bank Nubank, starts with roughly $15 trillion sitting in American checking and savings accounts. Banks pay an average of about 0.4%, or 40 basis points, while benchmark interest rates have been around 4.5% to 5%. The gap, about $600 billion, goes to the banks instead of to savers.
In a branchless system, Vélez argues, much of that money would stay in consumers' pockets. Instead, he says, it pays for banking branches.
Vélez calls that gap a massive wealth tax: "The lower your income, the less you get paid." The story cites no rate data by income. By contrast, he says, people in the top 1% probably have a private banker optimizing their deposits.
Questions people ask
What is a basis point?
It is one-hundredth of a percentage point, a unit finance uses to talk about small rate differences. So 40 basis points equals 0.40%, and 100 basis points equals 1%. On $15 trillion in deposits, every 10 basis points is worth about $15 billion a year.
Why do Americans keep money in accounts that pay almost nothing?
Most people choose a bank for convenience, direct deposit, ATMs, and a nearby branch, not for the rate, and switching feels like a hassle. Banks also know that checking balances used for bills and everyday spending rarely move even when rates change. That inertia lets large branch networks pay little on ordinary deposits while charging more for loans and credit.
Do online banks actually pay more?
Often, yes, and usually by a wide margin. Online banks without branches have much lower overhead, so they can afford to pay 4% or more when benchmark rates are high, compared with fractions of a percent at big branch banks. The tradeoff is no local branch, though many offer large ATM networks and mobile check deposit.