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

jpkoning.blogspot.com

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

#161

Post by mrep »

rmrfstar wrote: post #140
matthewdgreen wrote: post #127

Earlier quoted context omitted.

There are services (google Max my Interest, this is not a product plug) that will allow you to automatically shuffle money between many high-yield online savings accounts. They'll make sure that your money stays in the highest-yielding account, but remains under the FDIC insurance limits.

For the lazy there are prime money market funds. In this panic and the '08 panic, the Treasury/Fed stepped in to protect prime funds. It's not fair to people who buy government funds, or jump through hoops to spread cash across banks. But that's what they do.

> It's not fair to people who buy government funds

Are you suggesting our government should prioritize investors who buy government bonds over its own citizens (who at least in theory, would have to pay for those bonds in the future with taxes)?

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

#162

Post by rmrfstar »

mrep wrote: post #161
rmrfstar wrote: post #140

Earlier quoted context omitted.

For the lazy there are prime money market funds. In this panic and the '08 panic, the Treasury/Fed stepped in to protect prime funds. It's not fair to people who buy government funds, or jump through hoops to spread cash across banks. But that's what they do.

> It's not fair to people who buy government funds Are you suggesting our government should prioritize investors who buy government bonds over its own citizens (who at least in theory, would have to pay for those bonds in the future with taxes)?

No.

I am saying that money market funds that buy short-term treasuries ("government funds") have the same level of safety as insured deposits. Because of this safety, they have lower yields than prime funds which invest in unsecured short-term corporate debt.

It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.

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

#163

Post by formercoder »

Aunche wrote: post #68
zdkl wrote: post #15

Earlier quoted context omitted.

Could you give some examples, adjusting for risk?

No penalty CDs are strictly better than savings accounts. I was able to lock my emergency savings into a 1.6% CD the day the Fed announced rates cuts.

Why are they strictly better? You remove interest rate risk at the expense of yield. They currently pay less than high interest savings.

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

#164

Post by mrep »

rmrfstar wrote: post #162
mrep wrote: post #161

Earlier quoted context omitted.

> It's not fair to people who buy government funds Are you suggesting our government should prioritize investors who buy government bonds over its own citizens (who at least in theory, would have to pay for those bonds in the future with taxes)?

No. I am saying that money market funds that buy short-term treasuries ("government funds") have the same level of safety as insured deposits. Because of this safety, they have lower yields than prime funds which invest in unsecured short-term corporate debt. It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.

> It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.

Can you explain this more? How are they bailing out prime fund investors?

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

#165

Post by reducesuffering »

singhrac wrote: post #150

As an aside, if someone is fairly risk averse (i.e. doesn't want to lose more then 10-15% in a crisis like what just happened) and wants to park ~200k, is the best option a high-yield savings account? A CD? I would have normally thought treasuries but obviously interest rates are low.

Depends on if you mean 10-15% real purchasing power or nominal. Most people think of cash as safe as possible but heavy inflation could wipe out 50% real purchasing power in a few years. Nominal? Sure, high yield savings account is safest, 1% currently, and won’t lose any nominal. You could even do a bond or muni bond fund, BND or VTEB, to gain extra after-tax yield ~2% without losing more than 10-15%. But you really want to not lose more than 10-15% real, in which you’d need to think of the money as a portfolio including inflation hedges like TIPS (inflation protected bonds), Stocks, and Gold, albeit in small 5-10% allocations because of their greater risk.

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

#166

Post by therealdrag0 »

thrwn_frthr_awy wrote: post #138

This is why the stock market is still going up. There is no where else to put your money. We need better 1-3% returns for savings and 401ks outside of equities. Where are people supposed to put their money these days?

Bonds?

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

#167

Post by throwaheyy »

formercoder wrote: post #40
garmaine wrote: post #7

Earlier quoted context omitted.

Savings account rates are terrible compared with alternative investments though, even cash-storage investments.

I’m not aware of anything with that risk / liquidity profile which pays better? In fact theoretically there shouldn’t be anything.

- High yield savings accounts

- CDs

- Money market accounts

All pay much higher than a typical megabank savings account and are equally as safe.

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

#168

Post by mrep »

reducesuffering wrote: post #165
singhrac wrote: post #150

As an aside, if someone is fairly risk averse (i.e. doesn't want to lose more then 10-15% in a crisis like what just happened) and wants to park ~200k, is the best option a high-yield savings account? A CD? I would have normally thought treasuries but obviously interest rates are low.

Depends on if you mean 10-15% real purchasing power or nominal. Most people think of cash as safe as possible but heavy inflation could wipe out 50% real purchasing power in a few years. Nominal? Sure, high yield savings account is safest, 1% currently, and won’t lose any nominal. You could even do a bond or muni bond fund, BND or VTEB, to gain extra after-tax yield ~2% without losing more than 10-15%. But you really…

I like BND. Only dropped 8.7% from peak to bottom in march (back up now), it pays out a decent dividend, and it is a vanguard etf and vanguard is awesome in my experience.

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

#169

Post by throwaheyy »

singhrac wrote: post #150

As an aside, if someone is fairly risk averse (i.e. doesn't want to lose more then 10-15% in a crisis like what just happened) and wants to park ~200k, is the best option a high-yield savings account? A CD? I would have normally thought treasuries but obviously interest rates are low.

The fed lowering interest rates has murdered money market rates (e.g. 0.1% annualised return). Not a financial adviser but I’m currently using a mix of 1% APR HYSA and some bond ETFs (some total bond exposure, then some additional holdings increasing exposure to just US bonds and US municipal bonds).

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

#170

Post by formercoder »

throwaheyy wrote: post #167
formercoder wrote: post #40

Earlier quoted context omitted.

I’m not aware of anything with that risk / liquidity profile which pays better? In fact theoretically there shouldn’t be anything.

- High yield savings accounts - CDs - Money market accounts All pay much higher than a typical megabank savings account and are equally as safe.

Sorry i meant better than high yield savings.
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