Amid a wave of rising interest rates, a "revolt" is brewing among bank customers, fueled by a growing acknowledgment that some financial institutions have not been proactive in advising them of more lucrative savings options.
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Chris McMahon, the president and CEO of Aquinas Wealth Management, spotlighted customers' discontent on April 12, saying on Fox Business that entities such as Wells Fargo have seen a shift as customers migrate to higher-yield accounts, which has affected the banks' profits via its net interest income.
The shift in consumer behavior comes as banks face scrutiny for not automatically updating customer accounts to more beneficial high-yield savings options, particularly in an economic climate where the Federal Reserve's rate hikes could mean more substantial returns for savers.
"There's a little bit of a revolt going on for the customer side," McMahon said on Fox Business. "Wells [Fargo] said it was a problem for them. Customers are switching to higher-yield accounts."
Read more: Current CD Rates
The movement, driven by a better-informed public and discussed openly by financial experts, is beginning to affect traditional banking revenue streams.
According to Wells Fargo's first-quarter earnings report, which was published Friday, the bank saw an 8 percent drop in net interest income due to the "impact of customer migration to higher yielding deposit products."
"People don't realize they're in a savings account getting 1 percent, and their friend chirps in their ears and says, 'You could get 5 [percent] if you switch to the money market,' and [the customers] didn't know it, and no one at the bank told them. People are upset," McMahon said.
Newsweek has contacted Aquinas Wealth Management for comment by email.
As banks grapple with the backlash over their handling of high-yield savings accounts, some customers have escalated their dissatisfaction to legal challenges, arguing that they have been systematically deprived of higher returns because of banking practices.
There has been a surge in legal actions around the issue in recent months. In February, The Wall Street Journal reported that UFB Direct customers, after discovering they were not automatically upgraded to better-yielding accounts despite rising interest rates, initiated class-action lawsuits.
The lawsuits accuse banks of deceptive practices for maintaining older accounts at lower interest rates while quietly introducing new ones with higher rates that require active customer intervention to benefit from.
Major banks, such as Capital One, have faced accusations in class-action suits that they failed to adequately inform customers when new, higher-interest accounts were available—essentially costing loyal customers potential earnings, as every percentage point in interest can translate to annual earnings on savings.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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