Deposit Trends Benefit Banks

NEW YORK (TheStreet) -- U.S. consumers are finally starting to take a few steps out on the risk spectrum - taking money out of liquid deposits and placing them into longer-term or higher-yielding assets.

This is a good trend for big banks, which have been able to lock consumers into low-cost funding for a longer period of time, while collecting fees from the flood of money entering the bond market.

According to a report released this week by Market Rates Insight, deposit balances at U.S. banks declined for the first time in nearly two decades. During the period ended June 30, banks held $7.67 billion in deposits, the second quarterly decline from a peak of $7.7 billion at year-end. Those deposits had been on an upward trend since the first quarter of 1992, when balances stood at a mere $3.27 billion.

The reason? Declining rates.

Checking accounts, savings accounts and money-market accounts are all yielding just fractions of a percent - from 0.1% to 0.3% -- and fell further this week, according to BankingMyWay.com. To get a rate above 1%, depositors must move into CDs that are at least one year in duration. BankingMyWay.com data show that those rates have declined as well.

What is the yield on my portfolio?

As a result, after a couple years of cash-hoarding in safe, liquid products, investors are starting to demand more bang for their bucks - even if it means locking in their money for a longer period of time. Market Rates Insight data show that money flooded into long-term CDs last week, with two- and five-year deposits garnering 60% of those that repriced; the least amount of deposits that repriced went into three-month CDs. Similarly, money continued to flow into T-bills, with yield declining at a faster pace, the longer the duration.