Why A Trillion Has Fled Traditional Bank Accounts

Rising interest rates and a trio of regional bank failures have turbocharged the movement of cash into higher yielding alternatives–particularly money market mutual funds. Here’s how to bump up your own yield.

The movement of funds out of traditional bank accounts started slowly at first in the spring of 2022, after the Federal Reserve belatedly began its battle against pandemic-era inflation by raising interest rates. It accelerated dramatically this past March, when Silicon Valley Bank became the first of three large regional banks to fail this year. In all, over the past 13 months, a staggering $1 trillion in deposits has left the commercial banking system.

No, despite the lightning speed bank run that toppled SVB, depositors haven’t been panicking en masse. They aren’t pulling money out of the banking system to stuff into their mattresses–U.S. commercial banks still hold $17.15 trillion in deposits. Instead, bank customers have awakened to the fact that without much extra effort or risk, they can be earning 3% or 4% or even 5% in interest a year on cash they have left sitting in traditional bank checking and savings accounts earning little or nothing.