Sen. Reed Accuses Big Banks of Gouging Customers

Senate Banking Committee member echoes credit union argument in questioning banks' response to increased interest rates.

Accusing the largest banks of using high interest rates to help their investors, Sen. Jack Reed, D-R.I., wants to know why bankers are increasing interest rates on loans, but not on savings accounts.

“Soaring interest rates are hitting Americans hard. Customers are paying more and more for loans,” Reed wrote, in a letter to seven of the largest banks this week. “It appears the biggest banks are exploiting the higher interest rate environment to benefit their executives and shareholders, not the ordinary Americans whose deposits provide the funding necessary for those banks to operate.”

Where Credit Unions Stand

Credit union trade groups have long argued that while for-profit banks are designed to reward investors, credit unions are member-owned and use their funds to benefit members.

In fact, the personal financial website Bankrate said this week that “savers looking to maximize their earnings from interest should consider turning to online banks or the top credit unions, where rates are typically much better than those offered by traditional banks.”

Inside the Senator’s Letter

But Reed said big banks also should be rewarding their customers. He wrote nearly identical letters this week to Wells Fargo, JPMorgan Chase, Bank of America, Citigroup, U.S. Bancorp, Truist and PNC.

Historically, according to Reed, when the Federal Reserve raises its rates, banks increase the interest rates they pay savers. That’s not the case right now, he said, calling the rates customers are receiving on their savings accounts “puny.” 

Reed, a member of the Senate Banking Committee, noted that the FDIC has reported the average interest rate for a savings account is 0.21% and that most of the largest banks are paying 0.01% interest to their depositors.

At the same time, the banks are charging as much as 28% interest on credit card loans and 7% on mortgages.

Reed said that the banking industry’s own research predicted that deposit rates would begin to rise once the Federal Reserve interest rate target reached 1.33%. However, the target rate has increased far beyond that threshold and those deposit rates have yet to increase.

What Comes Next?

The Senator added that during a recent Banking Committee hearing, bankers assured him that they were likely to increase the interest rate provided to customers holding savings accounts.

That has not occurred at many banks, according to Reed, who concluded, “Savers would be better off if the biggest banks offered deposit rates that even modestly resembled the Federal Reserve’s target rate.”