Capital One High-Yield Account Wasn’t

I’m sorry but the whole theory of banking, the basic core of how banking works, is that a lot of people don’t pay attention to the interest rate on their bank accounts, so banks can pay them below-market rates. This is not a minor peccadillo of nasty bankers; this is not a little malfeasance at the periphery of a basically customer-centric industry; this is not “oh those sneaky bankers, trying to keep deposit rates low even as the Fed raises rates.” This is what banking is. “Banks can keep deposit rates low even as the Fed raises rates” is why there is banking.

I am exaggerating? A little? But we have talked about this theme a lot, because in 2023 there was a mini-crisis at US regional banks. The quick story of the crisis was that the Federal Reserve raised interest rates rapidly, and a lot of depositors took their money out of US regional banks and put it elsewhere. (Other banks, Treasury bills, money market funds, etc.) The banks had had a lot of deposits on which they paid roughly zero interest, which provided them funding that was cheap and that they thought was pretty stable. But it turned out not to be stable: The deposits left, and the banks mostly had to replace their deposits with more expensive money, undermining their business model and occasionally leading to bank failures.