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January 2022

Deposit Growth Likely Slowing but Abundance of Low-Cost Funding Could Endure Through 2022

This publication is part of:

Collection: On Point


Commercial bank deposits increased at a record pace in 2020 and into early 2021 reflecting increased precautionary saving by households and businesses in response to the pandemic. Despite some slowing in the second quarter of 2021 as precautionary saving receded, the pace of deposit growth remains elevated by historical standards. As a result, the banking system currently holds about $3 trillion in "excess" deposits-equal to roughly 17 percent of total deposits. The outlook is for continued slowing in deposit growth, driven mostly by this projection: The Blue Chip consensus forecasts the U.S. personal saving rate to come down from its still elevated level of 10.1 percent to 7 percent by the end of 2022. Additionally, Federal Reserve tapering will likely have a mild, temporary negative effect on deposit growth. But at the same time, there are factors, such as low interest rates on Treasury bills and money market funds, that may encourage households and businesses to keep their deposits in the banking system.


Paul Wexler and David Krisch