Hundreds of billions of dollars in deposits have exited US banks this year as consumers and institutions flock to money market funds to take advantage of the high interest rate environment.
New data from the Federal Reserve Economic Data (FRED) system shows deposits in all US commercial banks plunged from $17.736 trillion at the start of the year to $17.339 as of November 22nd.
That’s a decline of $397 billion.
The decline in deposits comes as trillions of dollars flow into money market funds as investors look for steady returns on their cash.
The Investment Company Institute (ICI), a global association of regulated funds, says a record total of $5.836 trillion has flowed into money market funds as of November 29th as investors appear to be making the most out of prevailing interest rates.
The ICI notes that retail investors account for $2.245 trillion of the capital allocated to money market funds. Meanwhile, institutional investors are responsible for the remaining $3.590 trillion.
Forbes reports that money market funds pay as high as 5.13% in interest compared to the national average annual percentage yield (APY) of 0.56%. Yields in market money funds are closely tied to the federal funds rate which stands at 5.33% as of November 30th.
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