Investors are rapidly shifting their assets into money market funds.
They moved $508 billion into these cash funds during the first quarter of 2023, the largest amount to be moved into these funds in a single quarter since the start of the pandemic three years ago, Bloomberg reported Friday (March 31).
This brought the amount of assets in United States money market funds to $5.2 trillion, which is a record high, according to the report.
These investors are moving away from traditional deposits and looking for security in funds after the recent bank runs, the report said.
They’re also seeking the higher interest rates offered by money market funds, which are currently the highest they have been in 16 years and offering 5% returns, per the report.
Many investors are also moving away from stocks due to the current economic volatility and the expectations that the market will not rise far from where it is now through the end of the year, according to the report.
It was reported earlier this month that a move to Treasury bills and money market funds has seen commercial bank deposits fall for the first time since 1948.
This has led banks to begin lifting their own rates, especially on certificates of deposit (CDs), to woo customers back from the higher-yield alternatives.
During this month’s banking crisis, customers also moved their deposits from small banks to larger ones.
They pulled $109 billion from smaller banks — causing small banks’ deposits to decline by 1.5% in the week through March 15 compared to a year earlier.
At the same time, larger banks saw a $120 billion influx.
Deposits also shifted to outside the banking system to money market mutual funds, with U.S. bank deposits declining and money market mutual fund balances rising.
Even before the recent bank failures, customers were pulling their savings from banks and chasing higher yields.
As PYMNTS reported in February, this has created an opportunity for digital-first financial institutions to reach out to consumers who may be newly considering, or have already jumped to, making a digital-first bank their primary FI.