In a highly anticipated move, last week the Federal Reserve cut the federal funds rate by 0.25% from 4.25% to 4.00%. The federal funds rate is the interest rate that banks charge one another when they borrow or lend to other banks so they have enough cash on hand. This “overnight rate” has big implications on the interest rate banks will pay their depositors on their cash balances. Importantly, the Fed also signaled a willingness (and possible intent) to cut rates two additional times before year-end.
This is bad news for depositors, as most of the large, money center banks (like Wells Fargo, JP Morgan Chase, Citigroup, and Bank of America) already pay little to no interest on deposits. Generally speaking, banks earn money by loaning their depositors’ (ie, your) money to borrowers. For the money center banks, a big portion of their earnings comes from loaning their depositors’ cash out to other banks at the overnight rate while paying their depositors next to nothing, thus earning the “spread” between what they loaned the funds out for and what they pay their depositors. A quick scan of deposit rates this morning revealed the following interest rates on savings at the money center banks: Wells Fargo = 0.01%, Bank of America = 0.01%, Citigroup = 0.01%, JP Morgan Chase = 0.01%. Better rates are accessible at the money center banks, but they often require jumping through various hoops to dissuade customers from doing so. And with “sticky” inflation (the Consumer Price Index (CPI) was 3.2% as of the September 12, 2025 report), depositors are likely at a negative real yield on their cash.
Bottom Line: If you are sitting on cash at one of these banks, you may be losing money on a real basis. And who do you want to earn the spread — you or a “too big to fail” bank? BSW can get your cash working in money markets yielding up to 4.19% with our custodians, colleagues at Flatirons Bank, or deployed into your portfolio. Your Advisor, Portfolio Manager, or Client Service Manager can help. Give us a call or shoot us an email. We are happy to help.
-David Wolf, CEO
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