Flight to Money Funds Is Adding to the Strains on Small Banks

After the most tumultuous month since the 2008 financial crisis, banks are finding themselves in an impossible position.

Keeping interest rates on deposits near zero is becoming increasingly untenable, with the collapse of Silicon Valley Bank, Signature Bank and Silvergate Capital Corp. putting savers on high alert for better and safer alternatives. But raising rates enough to compete with money-market funds is also a nonstarter that would crush profit margins and potentially roil stock prices.