What Makes Depositors Tick? Bank Data Insights into Households’ Liquid Asset Allocation

We use transaction-level data from a major Icelandic bank—servicing about one third of the population—to study households’ portfolio allocation within liquid, short-term, safe assets that are identical in risk, maturity, and liquidity but offer different yields. These assets are the main source of liquid financial wealth for households and the largest source of funding for banks. Despite all assets being equally safe and liquid, with instantaneous and free transfers, we find substantial heterogeneity in holdings: households tilt portfolios toward high-return assets as wealth rises, yet portfolios are largely unresponsive to interest-rate fluctuations, except among the wealthy. Even in this frictionless environment, we document large costs of inaction, with forgone interest income for wealthy households reaching about 2.5 percent of annual consumption. We find that aggregate deposit fluctuations are driven mainly by wealthy households’ portfolio rebalancing. Finally, we show that a calibrated portfolio-choice model with standard adjustment frictions replicates cross-sectional holdings but substantially overstates sensitivity to interest rates.