By Jigar Gohel
Deposit growth is a critical factor enabling banks of all sizes to carry out core functions and operations. In the period following the 2007-08 financial crisis and preceding the COVID-19 pandemic (2011-19), deposit growth was steady and predictable. The compounded annual growth rate for total deposits was 4.7% and there were only three-quarters of aggregate deposit declines during this period.
The COVID-19 pandemic marked a sharp break from these historical patterns for the banking industry. To support the U.S. economy, there was significant expansion in both fiscal and monetary policy as consumer spending was constrained due to high economic uncertainty. This liquidity expansion translated into an unprecedented surge in bank deposits, which increased by $5.4 trillion between 2020 and the first quarter of 2022. Over this period, the compounded annual growth rate reached 10.9%, roughly double the average pace observed during the decade prior to the pandemic.
Beginning in the second quarter of 2022, deposit balances began to decline as the Federal Reserve gradually reduced the size of its balance sheet and initiated a series of federal funds rate increases. From the second quarter of 2022 through the third quarter of 2023, the banking industry experienced $1.4 trillion in deposit outflows across six consecutive quarters, another historically unusual development. After accounting for these outflows, total deposits still remained approximately $4 trillion higher in 2023 than in 2020. Given the magnitude of these shifts, this article examines how deposits have changed within the banking sector’s aggregate liability structure.
From 2011 to 2019, deposits in transaction accounts comprised an average 12% of banks’ funding sources. In 2020, the share surged to 22%, reflecting a heightened preference for liquidity as households and businesses held more funds in checking accounts for day-to-day use. At the same time, interest rates were near zero, leaving consumers with limited higher-yielding alternatives.
The share of time deposits fell in 2020, declining by four basis points to 7%, as the Federal Reserve lowered interest rates in the first quarter of 2020. When monetary policy reversed course starting in March 2022 to combat inflation, higher rates renewed interest in term funding: Time deposits rose to 12% of total deposits in both 2023 and 2024.
Savings deposits, including money market deposit accounts, accounted for about 45% of deposits on average prior to the pandemic and remained above 40% through 2022. However, their share declined sharply to 30% by 2025, indicating a shift away from traditional savings balances even as interest rates remain elevated.
Taken together, these developments reflect dynamic depositor behavior and bank funding strategies. The pandemic elevated transaction accounts as consumers held funds in their checking accounts, while subsequent monetary tightening heightened rate sensitivity and encouraged a reallocation toward higher-yielding time deposits. From a bank’s perspective, this shift represents a trade-off between funding cost and stability. Time deposits offer more predictable maturities but at a higher expense, while savings balances are generally less costly yet more vulnerable to runoff in rising rate environments. As a result, banks were required to actively reassess and rebalance funding compositions amid large inflows and shifting interest-rate conditions.
Since the extraordinary period, deposit growth has begun to normalize. Annual deposit growth in the fourth quarter of 2025 was 4.5%, in line with the compounded annual growth rate of 4.7% observed from 2011 to 2019.
Jigar Gohel is an economic research associate at ABA.
