There is, according to one source I recently read, more than $3 trillion dollars locked up in CD’s, more than half of that in 1 year CDs. And much of that started flowing into those instruments a year or so ago, when interest rates got so much attention - coupled with how poorly regular bank account rates were.
That means a couple of things:
There is a ton of money that’s about to be looking for a home. Some of it will automatically rollover, perhaps into instruments that don’t pay nearly what the original rate was. If you have automatic rollover checked, make sure it’s suitable, some banks are targeting these and punching them into far lower rate certificates.
I would think at least a portion of those cash outs would be looking for a new home. Perhaps it will be, uh, a new home. But I suspect a lot of it will be in the stock market which continues to do well. Better than well, actually, fantastical. The trend could continue in spite of its already lofty heights.
If you have several or many CDs, be sure you know when they come due, (I have each on my calendar) you generally only have a couple/few days to decide what to do with them if they’re going to rollover. You can find some paying 4.5% or slightly better still, but with the rate cuts in the wind that number is likely to fall.
$3 trillion is a pot full of money. I’d expect it to fuel the consumer side of the economy for another 12 months at least, but then what do I know? Macro is interesting to me, but always a mystery, eh?
All commercial Banks in aggregate have $17.6 Trillion in deposits. The bulk of bank deposits are still in checking/ savings account. Traditionally some % of bank deposits are held in CD’s. These are rolling CD’s by retirees, folks who save for some specific purposes like vacation to buying house, college fees etc.
While some money has moved away from banks into money market, CD’s, the incremental $$$'s are not that high. The best place to see this is in NII, and even better is the net interest paid by the banks on their deposit.
You will be surprised how sticky bank deposits are, unless you are SVB, whose deposits are primarily from VC industry and not your average retailer depositors.
I hope not. Markets can easily move up or down 10% easily. If you are a retiree looking for steady income or saving for a down payment etc, you better not invest in stock market.
Hmmm…what is the source of that data? Because according to FRED data from the St Louis Federal Reserve Large Time Deposits, All Commercial Banks (LTDACBM027NBOG) | FRED | St. Louis Fed (stlouisfed.org) “Large Time Deposits” (i.e. CDs) as of the end of July, 2024 were $2.32T, down from the peak of $2.37T at the end of February, 2024, but up substantially from $1.42T at the end of March, 2022, when the Fed started to increase rates.
I doubt it. While there was an increase in CDs during 2022 and 2023 (see graph above), the total deposits at banks have actually decreased since the Fed started raising rates in March, 2022, again according to FRED data Deposits, All Commercial Banks (DPSACBM027NBOG) | FRED | St. Louis Fed (stlouisfed.org) Total deposits at the end of March 2022 were $18.17T, while they are down to $17.53T at the end of July, 2024
At the end of Feb, 2024 (when CD deposits peaked) total deposits were $17.46T
Those numbers would tend to indicate, if anything, people were moving money around at their banks, from non-interest bearing accounts or money markets into CDs. If they aren’t happy with the new rates, they’ll just move the money back into their money market or non-interest bearing accounts instead of locking it up for a year (or more) in CDs.
Market-leading CDs with terms one-year or shorter currently offer annual percentage yields of 5% to 5.5%. Lured by such attractive rates, investors are keeping record $2.9 trillion stashed in certificates of deposit, according to FDIC data.
Because investors have tended to opt for relatively short-term CDs, banks will soon be handing a large chunk of that back to investors—about $2.5 trillion in the next year. Around $950 billion of that will mature in the next three months, according to an analysis by The Financial Brand, a financial industry trade publication.
Perhaps the discrepancy is that the Barron’s article is talking about consumer CD deposits while the St. Louis Fed number are “total”? Lots of instruments from banks and other financials are locked up in long term bonds and CDs. Consumers, by contrast, are more volatile, I think. I know there was a sudden “discovery” about a year ago - at least in the popular press - about how many people were find out how little they were getting in their savings/checking accounts, leading to a rush of looking for better payouts in CDs.
Marketwatch
If you are among the millions of American savers who [heeded the call last year] to lock in high interest rates before it was too late, you may have already started getting notices from your bank that you need to decide what to do next when your 1-year CD matures.
Now that they have “awakened”, I wouldn’t expect them to just go back into the pathetic rates being offered in checking/savings, but to find at least something more pleasurable, whether that’s hunting a new CD, the market, or perhaps a vacation splurge or new couch. Companies tend to keep their cash safe, whether it’s a bank needing capital, insurance requiring assets, or whatever. That’s why I wrote the post as I did. Yes, corporate cash swamps consumer cash (I think) but it tends to stay where it’s needed, consumers can be fickle.
The popular press has been full of these sorts of stories lately, and as it turns out I have a CD about to roll (most I bought were longer duration) so I’ve been chumming the waters for thoughts. The long awaited recession hasn’t happened, the market is at an all time high, and money market rates are sure to fall. So what to do with cash? I am, for the most part, fully locked up. No dry powder. I would think a correction is overdue, so I will probably just keep it in a pile in the drawer (figuratively) but there’s always alternatives, eh?
