Dear Mr. Scharf:
I write to inquire about the very low interest rates that Wells Fargo is paying its customers on their savings accounts.
Earlier today, the Federal Reserve raised its interest rate target to 4%. With higher interest rates, Wells Fargo has been able to make giant profits from lending to its customers. Last quarter your bank collected more than $12 billion in interest from mortgages and other loans, up 36% from the year before. This figure is net of the interest that Wells Fargo paid to depositors. You have recognized that the Federal Reserve's actions offer your bank an opportunity to profit, telling investors on the most recent earnings call that you see "the positive impacts of rising interest rates driving strong net interest income growth" and that your bank "is positioned well as we will continue to benefit from higher rates.
Normally, one would expect savers also to be well-positioned to take advantage of higher interest rates. But that does not seem to be the case for depositors at the biggest banks. Wells Fargo has benefited from higher interest rates by charging customers much more for mortgages, credit cards, and other loans, without paying customers higher rates on their deposits. One year ago, a new Wells Fargo customer received 0.01% on an ordinary savings account, while paying 3.34% on a 30-year fixed-rate mortgage and 13% to 25% on a credit card. Now, that same new customer would still receive 0.01% on a savings account, but pay 7.08% on a mortgage and 16% to 28% on a credit card.
In response to my questions at a Senate Banking Committee hearing in September 2022, you and the CEOs of the nation's other largest banks all said that you expect to raise deposit rates as the Federal Reserve continues to raise interest rates. The banking industry's own research has suggested that deposit rates would start rising once the Federal Reserve's interest rate target reached 1.33%. The Federal Reserve's target is approaching three times that level. Several other large banks do, in fact, offer savings accounts that pay their depositors 2.25% to 3.0%. And yet, deposit rates at your bank have not budged.
While average consumers have seen virtually no increase in deposit rates, your bank offers higher-yielding longer-term deposit products to well-off customers who can afford to lock up tens or hundreds of thousands of dollars for more than a year. But these deposit products are out of reach for many Americans who cannot afford them, and they are no substitute for savings accounts that give customers access to their money on demand to pay for rent or utilities.
Soaring interest rates are hitting Americans hard. Customers are paying more and more for loans. It appears the biggest banks are exploiting the higher interest rate environment to benefit their executives and shareholders, not the ordinary Americans whose deposits provide the funding necessary for those banks to operate. Savers would be better off if the biggest banks offered deposit rates that even modestly resembled the Federal Reserve's target rate.
In light of these concerns, please provide an explanation, by November 23, 2022, of why your bank still pays the same very low interest rates on deposits even as it makes giant profits by charging borrowers higher interest rates on loans.
I appreciate your attention to this important matter.