U.S. Lower-Income Households See Sharpest Deposit Gains in 2026, Offering Mild Tailwind to Narrow K-Shaped Spending Gap

Household deposit balances across the United States rose meaningfully in the first five months of 2026, with the largest relative increases concentrated among lower-income cohorts. According to granular internal data from Bank of America, this development—fueled in part by elevated tax refunds under the One Big Beautiful Bill Act—could serve as a modest near-term buffer for consumer spending, particularly as lower gasoline prices ease cost pressures. While the effect is likely transitory, early signs point to a potential narrowing of the long-discussed “K-shaped” pattern in discretionary spending growth.

The findings, detailed in the Bank of America Institute’s 24 June report Deposit trends: A mild tailwind for “K” shape narrowing, carry implications for retailers, financial institutions, and policymakers monitoring the durability of U.S. consumer resilience amid divergent income and wealth trajectories.

Deposit Balances Rose Across Cohorts, But Lower-Income Groups Led on a Relative Basis

Bank of America’s analysis of a fixed cohort of households with consistent deposit accounts since January 2019 reveals clear divergence by income tercile. Between January and May 2026, median savings and checking balances for lower-income households increased approximately 15%. The corresponding rise for higher-income households was just 4%, with middle-income households falling in between.

This pattern reflects two structural realities. First, lower-income households entered the period with materially smaller absolute balances, so equivalent dollar inflows—particularly tax refunds—produce larger percentage gains. Second, higher-income households already hold significantly larger deposit balances in absolute terms. As a result, even when they received larger refund dollars, the relative impact on their stock of liquid assets was muted.

Importantly, these 2026 gains built on already elevated post-pandemic levels. By May 2026, median deposit balances for lower-income households stood nearly 70% above their 2019 average. Higher-income balances were about 40% higher. Although the Consumer Price Index has risen roughly 31% since 2019, the data indicate a meaningful real increase in liquid buffers across the distribution, with lower-income households retaining the strongest relative position versus the pre-pandemic baseline.

Younger and Lower-Income Cohorts Captured the Largest Gains

The deposit windfall was not uniform across generations. Lower-income younger Millennials and Gen Z households recorded the steepest increases between January and May 2026. This aligns with their lower starting balances and greater exposure to refund-driven inflows. Traditionalists and Baby Boomers, by contrast, saw more modest percentage lifts.

The generational skew matters because younger cohorts also tend to exhibit higher marginal propensities to consume out of liquid assets. Combined with the income breakdown, the data suggest the deposit surge is most likely to translate into spending support where it has historically been most constrained—among lower- and middle-income households that hold a larger share of their financial assets in deposits rather than equities.

Seasonal Patterns Suggest Elevated Balances Will Fade, But Lower-Income Households May Retain Them Longer

Deposit balances exhibit a well-established seasonal rhythm. They typically rise through April or May as tax refunds and, in some cases, bonus payments arrive, then decline over the balance of the year as inflows normalize and outflows resume. Bank of America’s multi-year index (January = 100) confirms this pattern held in 2026, consistent with prior years.

Lower-income households, however, have historically experienced both larger seasonal boosts and slower subsequent drawdowns. In 2025, for example, their balances did not return to roughly January levels until December, whereas higher-income balances normalized by around July. Early 2026 data suggest a similar dynamic may unfold, implying that any spending support from higher deposits could persist longer for the lower end of the income distribution.

Rising Outflows Pose a Risk, But Improving Wage Growth May Provide an Offset

Not all signals are unambiguously positive. Outflows from direct deposit accounts as a share of average balances rose in March–May 2026 relative to the prior two years, with the largest increases among lower-income and younger cohorts (Gen Z and Millennials). Higher costs in housing, insurance, and—until recently—gasoline appear to be the primary drivers.

This raises the possibility of a faster drawdown in deposits than seen in recent years. However, Bank of America’s internal wage data offer a potential counterweight. After-tax wage and salary growth (three-month moving average, seasonally adjusted) strengthened notably for lower- and middle-income households through May 2026, though it remains below the pace recorded by higher-income households (5.6% year-over-year for higher-income versus 3.1% for lower-income in May).

Crucially, the wage improvement for lower-income households has been relatively broad-based across Gen Z, Millennials, and Gen X. If this trend proves durable through the summer—as labor market data and direct deposit flows continue to suggest—it could lift inflows into deposit accounts and partially or fully offset the observed rise in outflows.

Why Deposits Matter: Liquidity, Confidence, and Differential Wealth Effects

Higher deposit balances support spending through multiple channels. Most directly, they represent immediately spendable liquidity. More subtly, they can bolster households’ perceived financial security, encouraging greater spending out of current income even if balances themselves are not drawn down. For lower- and middle-income households, which allocate a larger proportion of total financial assets to deposits (per Federal Reserve Distributional Financial Accounts data), movements in cash balances carry outsized influence on spending behavior compared with equity market fluctuations, which disproportionately affect higher-income cohorts.

Bank of America card spending data already show tentative evidence consistent with this dynamic. The gap between higher- and lower-income discretionary spending growth narrowed in May and appears to have continued into June on a seven-day moving average basis. Independent analysis from PNC Economics, drawing on a fixed cohort of approximately four million households, corroborates the picture: lower-income spending and balance sheet trends strengthened meaningfully in 2026, narrowing the upper-lower income spending gap to its tightest level in three years.

Sentiment Remains Weak Despite Improving Hard Data

Survey evidence underscores the limits of the current improvement. The Bank of America Proprietary Market Landscape Insights Study (fielded through mid-June 2026) finds that roughly half of lower-income respondents describe their personal finances as “poor” or “terrible,” with a majority expecting no improvement over the next six months. This persistent pessimism—rooted in cumulative inflation since 2019, elevated shelter costs, and prior labor market softness—suggests that any spending response to higher deposits may be more measured than the raw liquidity numbers imply.

Implications and Risks Ahead

The deposit surge constitutes a mild, time-limited tailwind rather than a fundamental re-rating of consumer strength. Its durability will hinge on three factors: the persistence of improved wage growth for lower- and middle-income households, the evolution of the labor market through the summer, and the translation of lower oil prices into sustained relief at the pump.

For equity and credit markets, the data temper—without overturning—concerns about an abrupt consumer cliff. Retailers with exposure to value-oriented and younger consumers may see relative support in coming quarters. Banks and fintech platforms focused on transaction banking or embedded finance could benefit from sustained deposit stickiness among lower-income cohorts, even as seasonal normalization occurs.

Policymakers and investors should monitor the upcoming employment reports and subsequent Bank of America and PNC consumer checkpoint releases closely. A continuation of the recent wage momentum would reinforce the case for a gradual narrowing of K-shaped divergences. A reversal or stalling of wage gains, by contrast, would increase the probability of faster deposit drawdowns and renewed spending divergence.

In short, the early 2026 deposit data provide concrete, if modest, evidence that the most acute phase of K-shaped consumer divergence may be easing. The improvement remains fragile and contingent. Markets would be wise to treat it as a data-dependent tailwind rather than a new baseline.

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References

Bank of America Institute. (2026, June 24). Deposit trends: A mild tailwind for “K” shape narrowing. Bank of America. https://institute.bankofamerica.com/content/dam/economic-insights/deposit-trends.pdf

Bank of America Institute. (2026, June). Consumer Checkpoint series. https://institute.bankofamerica.com/consumer-checkpoint.html

LeBlanc, B. (2026, June). Consumer Health Check: June 2026. PNC Economics Research. https://www.pnc.com/insights/personal-finance/spend/consumer-health-check.html

Minneapolis Fed. (2026, March 20). Have U.S. consumers gone “K-shaped”? A review of the data. https://www.minneapolisfed.org/article/2026/have-us-consumers-gone-k-shaped-a-review-of-the-data

New York Fed Liberty Street Economics. (2026, May 1). Tracking the K-shaped economy: Who’s driving spending? https://libertystreeteconomics.newyorkfed.org/2026/05/tracking-the-k-shaped-economy-whos-driving-spending/

TD Economics. (2026, February 5). U.S. Consumer Spending: Still a K, but That’s OK. https://economics.td.com/us-k-shaped-consumer-spending

U.S. Bank. (2026, January 7). The K-shaped economy in 2026. https://www.usbank.com/corporate-and-commercial-banking/insights/economy/macro/k-shaped-economy.html

(Note: Additional context drawn from contemporaneous reporting in Fortune (19 June 2026) on early signs of K-shape moderation and related Bank of America Institute Consumer Checkpoint releases throughout 2026.)