Interest-rate hikes and several bank collapses in the last 13 months have driven many investors away from traditional banks and straight to mutual funds.
- Investors looking to make money are shifting away from traditional bank accounts—moving around $1 trillion over the last year.
- Mutual funds may offer investors higher yields than traditional bank accounts, The Future Party reports.
- While Americans may benefit from the higher yields offered by mutual funds, many customers leaving may start affecting banks’ profitability.
Why it’s news
Ever since the financial crisis in 2008, investors have had little to gain by moving finances around since the Federal Reserve has kept interest rates relatively low—so most saving options were not providing great returns. However, in the last year, the Fed has dramatically raised those rates in an effort to reduce inflation—but many banks have kept their savings rates low. But with some options yielding higher returns, it is worth it for investors to move their money around to the most profitable accounts.
In the last year, inventors have moved around $1 trillion from their traditional bank accounts and into more profitable opportunities, The Future Party Reports.
Though the fiscal migration began when the Fed started raising rates, investors did not really start to flee until Silicon Valley Bank collapsed. Concerned investors moved their funds from traditional banks that they now perceived as unstable into mutual funds, which generally provide a higher return.
After the bank collapse, investors moved nearly $400 billion from commercial banks. About $340 billion of those investments went to money market funds. While banks offer under .5% interest on checking and savings accounts and less than .6% on their money market savings accounts, money market mutual funds can pay anywhere from 4% to 5%.
Even if customers are not moving their accounts to mutual funds, many have found that relocating their investments can be in their best interest, The Future Party reports.