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two and a half years of high interest rates maintained by the federal reserve have brought us banks $1 trillion in extra profits, a financial times analysis of official data found.

banks earned higher returns on their deposits at the federal reserve while keeping interest rates paid to many depositors low, a strategy that significantly boosted profit margins at more than 4,000 u.s. lenders, an analysis shows.

although some savings account rates have risen to above 5% along with the federal reserve's benchmark rate, the vast majority of savers, especially customers of large banks such as jpmorgan chase and bank of america, receive rates far below the market average.

regulatory data show that as of the end of the second quarter, the average annual interest rate paid by u.s. banks to depositors was only 2.2%, much higher than 0.2% two years ago, but still far lower than the 5.5% overnight interest rate banks receive from the federal reserve. the annual deposit costs of jpmorgan chase and bank of america are 1.5% and 1.7% respectively, further proving the huge profits banks make from the interest rate differential.

calculations by the financial times show that these lower deposit rates have generated $1.1 trillion in extra interest income for banks, about half of their total revenues over the period. this figure contrasts with europe, where some governments have imposed windfall taxes on banks that benefited from higher interest rates.

last week, the federal reserve announced a 0.5 percentage point cut in its main policy rate, which some u.s. banks quickly passed on to depositors, further boosting their profit margins. for example, citi notified its private bank employees hours before the fed's rate cut announcement that it would cut interest rates by the same amount for accounts paying 5% or more. jpmorgan chase also took similar measures, cutting savings rates by 50 basis points for customers holding $10 million or more in cash.

chris mcgratty, head of u.s. banking research at investment bank kbw, said banks will "certainly" be able to "reduce deposit costs" as a result of the fed's rate cuts, but the extent of the cuts will vary.

a report from the risk management association compares banks to gas stations, noting that they tend to be quick to lower interest rates on deposit accounts but relatively slow to raise them. this observation is consistent with the behavior of banks over the past two and a half years, as they have managed to retain most of the gains from higher interest rates despite competition from financial technology companies and the ease with which consumers can move cash.

it is worth noting that bank stocks performed positively last thursday, even though the federal reserve has begun to ease monetary policy, as investors bet that lower interest rates and a relatively healthy economy will stimulate borrowing demand and boost trading activities in investment banking sectors. however, analysts also pointed out that as a large number of time deposits mature, banks will face pressure to lower interest rates, but the process will be slow.

“there’s going to be a slow process of rate cuts,” said scott hildenbrand, chief balance sheet strategist at banking advisory firm piper sandler.