Banks are slow to increase rates on savings accounts, but quick to reduce them • Hacker News Board

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#41

Post by bryanlarsen » Sat, Jul 25, 2020, 1:08 PM UTC

leetrout wrote: post #30

save_ferris wrote: post #2

This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers? The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are…

I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate…

But when the price drops back down you don't immediately drop your price because why would you charge $1.10 for something you paid $2 for?

But your competitor will lower their prices when they get a refill, so you may end up having to lower your prices before you get your own refill.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#42

Post by Threeve303 » Sat, Jul 25, 2020, 1:11 PM UTC

leetrout wrote: post #30

save_ferris wrote: post #2

This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers? The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are…

I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate…

This is what happened during Katrina and some of the hurricanes of the past decade or two.

The situation with the banks is slightly different.

The odds that the product, money, will cost more for them in the future does not line up with the recent history of bailouts, regulation changes, etc.

During Katrina, for example, it was a safe bet for the gas station owners that the next batch of gasoline could cost significantly more. A reasonable assumption due to the multiple wars in the middle east combined with a bad hurricane season shutting down gulf coast refineries.

In other words, the Federal Reserve did not run a discount window to provide cheap oil to gas stations. Even the strategic petroleum reserve, if tapped, would only benefit the refineries.

At any rate, one could argue that in both situations the entities involved made the safest and most profitable decision available to them.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#43

Post by jon-wood » Sat, Jul 25, 2020, 1:14 PM UTC

jacquesm wrote: post #33

blantonl wrote: post #17

Same goes for gas prices. I heard an earnings call recently for a public company that runs a ton of gas stations. They indicated that their margins on gasoline have gone far far up and offsetted and losses of sales of drink/snacks etc in their stores, because they are quick to raise gas prices when oil prices go up, but very slow to do so when prices go down. The amount of fascinating economic lessons we've gotten ov…

> losses of sales of drink/snacks etc in their stores As a former gas station owner, let me correct you here. Drinks and snacks, no matter how low the volume have crazy margins, sometimes 100% or more and make up a large fraction of gas station profits. It isn't rare to run the fuel at a loss to sell more ice cream and drinks.

How can a product have > 100% margin? Were you getting paid by the supplier to stock their products?

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#44

Post by leetrout » Sat, Jul 25, 2020, 1:16 PM UTC

bryanlarsen wrote: post #41

leetrout wrote: post #30

Earlier quoted context omitted.

I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate…

But when the price drops back down you don't immediately drop your price because why would you charge $1.10 for something you paid $2 for? But your competitor will lower their prices when they get a refill, so you may end up having to lower your prices before you get your own refill.

Yep, correct.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#45

Post by gambiting » Sat, Jul 25, 2020, 1:18 PM UTC

jon-wood wrote: post #43

jacquesm wrote: post #33

Earlier quoted context omitted.

> losses of sales of drink/snacks etc in their stores As a former gas station owner, let me correct you here. Drinks and snacks, no matter how low the volume have crazy margins, sometimes 100% or more and make up a large fraction of gas station profits. It isn't rare to run the fuel at a loss to sell more ice cream and drinks.

How can a product have > 100% margin? Were you getting paid by the supplier to stock their products?

Uhm, you buy an item for $1, sell it for $3, the margin is 200%, no?

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#46

Post by hamilyon2 » Sat, Jul 25, 2020, 1:25 PM UTC

Biggest assymetry I noticed yet is that mortgage rates are often fixed no matter what happens to current money lending rate.

I am no financial expert, but I think unpredictable rates hugely favor consumer.

When rates are high and money is in high supply, inflation reduces the actual principal, as nominal amount Stas the same. When rates are low, you can refinance mortgage at current, low rates and reduce interest part of your mortgage.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#47

Post by known » Sat, Jul 25, 2020, 1:31 PM UTC

Wish algorithms decide https://banksdaily.com/central-banks/

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#48

Post by akeck » Sat, Jul 25, 2020, 1:32 PM UTC

ArtWomb wrote: post #14

Am curious how Compound, dX/dY, Nexo services are able to advertise such high interest rates on digital assets. Some as high as 10% APR accrued on a daily basis.

They're all backed by algorithmic crypto trading, and thus are operating outside the banking system discussed in the article.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#49

Post by Spooky23 » Sat, Jul 25, 2020, 1:32 PM UTC

leetrout wrote: post #30

save_ferris wrote: post #2

This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers? The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are…

I heard this story / explanation before: You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit. Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill. I don’t know how accurate…

The gas station is an agent of the oil company and gets paid commissions. The gas is on consignment, owned by the upstream oil company.

The big oil company uses futures and options to manage risk.

All aspects of that industry have slowly reconsolidated, so the market forces that push prices down are generally weak.

Re: Banks are slow to increase rates on savings accounts, but quick to reduce them

#50

Post by readams » Sat, Jul 25, 2020, 1:34 PM UTC

stagger87 wrote: post #37

rjkennedy98 wrote: post #9

Earlier quoted context omitted.

There are a lot more people than you think that simply don't invest their money, instead they keep it in savings accounts. My aunt is one of those people. She got a large inheritance and basically kept it in a savings account for 20 years. My mom got the same inheritance and bought investment properties with it and now its worth 10x. I think it comes down to the fact that a lot of people are risk averse or feel that…

10x? I'm not familiar with real estate. How does one earn 10x in that time frame. Even with a price to rent ratio of 1 to 15 and assuming housing prices double over that period, you still aren't at 10x, and that doesn't include maintenance, taxes, closing fees, etc.

Leverage. Let's say the inheritance was 50k. You make that a 10% down payment on a 500k house. Assume rent covers your interest on the loan, taxes, etc. 10 years later the house appreciates 100% to 1M. You sell the house.

You just made 500k from 50k.