I think most banking experts would agree that Goldman Sachs' (GS -2.18%) digital bank Marcus has been very successful. The consumer banking platform offers high-yield savings accounts that pay an annual percentage yield (APY) four times higher than the national average. Marcus also offers high-yield certificates of deposits, unsecured loans, and credit cards.

In particular, the high-yield savings account has been a deposit machine for the investment bank in recent quarters. However, no matter how successful, all savings accounts are limited by market forces, namely the Federal Reserve's benchmark Fed Funds interest rate. In March, the Fed dropped the Fed Funds rate to zero, which could soon hamper Marcus' ability to continue bringing in deposits at the same pace it has been in the first half of the year.

The Marcus logo - a capital letter M followed by a colon

Image source: Marcus.

A low-rate environment

Marcus has been enjoying a superb year in terms of deposit gathering. Goldman Sachs' CFO Stephen Scherr on the company's most recent earnings call said Marcus' deposits through its retail channel reached $92 billion, up $20 billion in the second quarter, after boosting deposits by $12 billion in the first quarter. Marcus was so successful at growing savings accounts in the U.K. it had to stop accepting applications to avoid brushing up against regulations that would have required Goldman Sachs to spin off Marcus into its own company.

While Marcus has had great success, the problem is that the Fed dropped its benchmark interest rate in March from a range of 1.5% to 1.75% to zero in a matter of weeks. The Fed typically moves rates by a quarter of a percentage point, so this was a huge and sudden drop. The benchmark interest rate is not only the overnight rate that banks lend to one another at, but also closely tracked by many other rates, including the rate that banks pay out on savings and other bank accounts. So when the benchmark rate goes down, the rate paid on savings accounts follows suit.

For instance, in 2019 Marcus was paying an APY of over 2% on its high-yield savings accounts. But after the Fed's move in March, Marcus dropped this rate in May and then again in June , and is now only offering an APY of 1.05%. This rate could also come down further because deposit and loan rate movement usually lag behind the Fed's moves. Considering the Fed dropped rates so suddenly in March, deposit and loan rates could still be catching up. 

Either way, I think the question to ask for all higher-yield accounts and products is whether 1.05% is enough to get people excited. It essentially means that if you deposit $1,000 into one of these accounts, you will only earn a little more than $10 in interest in a year. I really don't see the average consumer being enticed by that, although those with higher balances may still see it as attractive.

Can Marcus keep up the momentum?

For what it's worth, since the coronavirus pandemic began, most banks have a seen a surge of deposits come in. Marcus also had a super successful second quarter, despite lowering the rate on its high-yield savings account. That could very well mean that people are also choosing Marcus because they really like the product. Not only is it reportedly very easy to sign up for, but Marcus accounts do not require any deposit minimums, do not charge fees, and allow for same-day transfers to other banks. As the low interest rate environment continues to play out and the economy becomes more stable, we'll get a better idea of what kind of growth to expect from Marcus' savings account. But if it can keep up this kind of pace in this rate environment, that would be pretty remarkable.