Did Apple Just Cause Another Bank Run?

by Andrew Zatlin May 05, 2023 10:26 am ET

From smartphones to watches, Apple has had a knack for disrupting major industries.

Now, its latest announcement is sending shockwaves throughout the banking industry.

Is another bank run on the way? It's possible – let me prepare you for it.

Did Apple Just Cause Another Bank Run?

It's a bad time to be a bank. It's a really bad time to be a small bank. And one of the biggest tech companies in the world just made things even more dire. Let me explain...

You see, Apple (AAPL) just announced a new high-yield savings account offering 4.15% annual interest. As you might expect, it's been a hit. More than $1 billion in deposits have flowed into these accounts in just four days.

Keep in mind that this money came from only 24,000 new accounts. That's 0.2% of Apple's total customer base. Translation? The rush toward Apple has only begun...

And this coming stampede will leave certain banks on life support.

A No-Brainer

A move to Apple's savings account is a no-brainer. After all, your choices are to earn 4% from Apple or less than 1% from your own bank.

You might wonder how it is that Apple can offer 4% when the big banks can't. The answer is that they absolutely can – they just choose not to.

Let's revisit the way banks work. You park your money at a bank and you earn some amount of interest – usually, not much. The banks then take your money and park it at another bank called the Federal Reserve.

The thing is, the Federal Reserve is a lot more generous than your bank is. In fact, while you might be earning 0.5% interest, a big bank is earning 5%.

And that's having an enormous impact on its bottom line.

All Aboard the Gravy Train

Take Citigroup (C), for example. Let's compare activity from the first quarter of 2020 and the first quarter of 2023.

Notably, revenues were the same in both quarters ($21 billion), and deposits were similar ($1.2 trillion in 2020 and $1.4 trillion in 2023). Yet this past quarter, Citi made almost 250% more money than it did in 2020. Why? Interest rates!

The Federal Reserve is paying Citibank 4.5% today, compared to just 2.2% in 2020. The result is a massive gravy train for this and other large financial institutions.

The thing is, this train is about to dry up – thanks to Apple.

Good for You, Bad for Banks

With its savings account, Apple is going to take a meaningful share from the banking world. That's good news for the tech giant – it means more business and revenue – and it's good news for people like you and me. We can earn more interest.

On the flip side, it's terrible news for banks. In fact, it could ignite another catastrophic bank run. Here's how...

Small Banks are on Notice

Any bank that doesn't match Apple's offer will likely see deposits dry up as people take their money out and stick it with Apple. That goes for banks both big and small.

But the bigger the bank, the less disruptive this will be. After all, big banks have deeper pockets and are sitting on bigger piles of cash. They're also more diversified than their smaller, regional counterparts.

It's these smaller banks that are in serious trouble. These banks rely heavily on money from deposits. They're going to have to decide whether to let those deposits dwindle or offer an interest rate closer to Apple's 4%. Either way, it could have disastrous results.

Next Up: Amazon and Google?

Of course, it's possible that big banks swoop in and acquire these struggling small competitors for next to nothing. In the meantime, consider the ripple effects...

Earning 4% on money that was previously earning less than 1% is going to cause a lot more money to move around. We could see a significant spike in inflation.

Furthermore, banks that need to pay out more interest to match Apple's offer will likely tighten elsewhere. That could mean an increase in lending standards and rates for things like mortgages and car loans.

Finally, keep an eye on other tech companies that might jump on board with Apple. Imagine a savings account offered by Amazon or Google. It's entirely possible.

Pay Attention

Bottom line: Apple's latest move could cause a domino effect in the banking industry and create another bank run.

This story needs your attention. We're on the edge of a potential banking crisis. And as with any crisis, there will be winners and losers... and plenty of opportunities to profit.

If you're a "Pro" subscriber, I'll reveal one such opportunity below. Don't miss out!

We're in it to win it. Zatlin out.