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U.S. interest rates have soared everywhere but savings accounts

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Re: U.S. interest rates have soared everywhere but savings accounts

#91

Post by kobalsky »

JumpCrisscross wrote: post #74
kobalsky wrote: post #62

Earlier quoted context omitted.

Bumping because I'm really interested in this answer. For me the obvious answer is, if the fed actions means it's more expensive to borrow now, then lend your money. The question is how and where. Bonds? Which bonds? TIPS don't seem to have a rate that would protect me from inflation. Gold? There's enough volatility there to lose more than 2 years worth of inflation with a badly timed entry, and I if I have to time m…

> TIPS don't seem to have a rate that would protect me from inflation The TIP yield is a real yield. It's indexed to CPI-U, same as Series I bonds. (TIPs adjust monthly; Series I bonds semiannually.) > would convert a some portion of my savings into stablecoins This is probably the worst choice one can make. It's accepting a 0% nominal yield against an unregulated counterparty. A Bank of America savings account is li…

I was clearly misunderstanding how TIP yields worked, I'll read more about it. Thanks!

Re: U.S. interest rates have soared everywhere but savings accounts

#92

Post by keewee7 »

azth wrote: post #40

Serious question: inflation seems to only be getting higher (is it 8%+ now?) the Fed's increasing of the interest rate is causing a stock market crash. So if one puts their money into assets, those are decreasing in price due to the fed, and if someone is holding cash that's also going down in value due to inflation. What's the solution?

>So if one puts their money into assets, those are decreasing in price due to the fed

Unless you are a day trader (or r/WallStreetBets trader) this should not be a long-term concern.

>Time in the market beats timing the market.

I have my assets in an S&P500 ETF and some Danish funds and stocks. Owning a good home in a first-world country is also a good long-term investment.

Re: U.S. interest rates have soared everywhere but savings accounts

#93

Post by toomuchtodo »

JumpCrisscross wrote: post #84
toomuchtodo wrote: post #58

Earlier quoted context omitted.

Would you say this speaks to the stickiness of savings accounts, in that there is no deposit account ACATS equivalent and folks won’t go through the effort of moving institutions to maximize savings returns?

> there is no deposit account ACATS equivalent There sort of is: wires and EFTs. The simple answer may be, for many savers, the spread is irrelevant. If you're saving for a home over a year [1], the difference between earning zero and 80 bps on e.g. $100,000 (quarter of the median home sales price [2]) is no more than $800. If these are your only savings, having them at an institution you know and trust may be worth…

Appreciate the reply, thanks for sharing the domain expertise.

Re: U.S. interest rates have soared everywhere but savings accounts

#95

Post by darth_avocado »

PheonixPharts wrote: post #60
azth wrote: post #40

Serious question: inflation seems to only be getting higher (is it 8%+ now?) the Fed's increasing of the interest rate is causing a stock market crash. So if one puts their money into assets, those are decreasing in price due to the fed, and if someone is holding cash that's also going down in value due to inflation. What's the solution?

> Fed's increasing of the interest rate is causing a stock market crash. Citation needed. Rate hikes were announced mid-march and I don't think you can even find that info on this chart https://finance.yahoo.com/quote/%5EDJI/ If we do see a crash soon I think it will likely be more related to major tech stocks failing to perform as expected. Of the original FAANG, F and N have both had days where there value dropped…

Well fed increased rates in March but they announced it long ago and the market corrected accordingly. It is common knowledge by now. The market is expecting 7-8 25 point increases in 2022 which has been priced in the declines so far. Any deviation to that will move the markets further.

Re: U.S. interest rates have soared everywhere but savings accounts

#96

Post by JumpCrisscross »

hakfoo wrote: post #89

I always wondered why there was seemingly no (marketed) business in foreign savings accounts. If I'm willing to ride the exchange rate risks, surely there's some bank in Honduras paying a higher rate on Lempira-denominated accounts. Compared to half the derivative products on the market, it's a straightforward offering, and it also feels an ideal product for flim-flam direct-to-consumer marketing-- backed by "governm…

> why there was seemingly no (marketed) business in foreign savings accounts

Opening accounts for Americans is expensive [1]. Offshore banks thus tend to focus on ultra high net worth Americans.

[1] https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance...

Re: U.S. interest rates have soared everywhere but savings accounts

#97

Post by ilammy »

hakfoo wrote: post #89

I always wondered why there was seemingly no (marketed) business in foreign savings accounts. If I'm willing to ride the exchange rate risks, surely there's some bank in Honduras paying a higher rate on Lempira-denominated accounts. Compared to half the derivative products on the market, it's a straightforward offering, and it also feels an ideal product for flim-flam direct-to-consumer marketing-- backed by "governm…

You don't think savings accounts yield interest out of charity, do you?

In most cases they are a way to purchase bonds and alike for people who don't want (or don't know how) to deal with that, and the bank pocketing the difference for their services.

If you're sophisticated enough to invest in a foreign country with a goal to actually get real returns and enough capital to make the hassle worthwhile, you'll find a way to do that better than a savings account.

But of course there is "market" for exchanging your USD into funny money at predatory rates, letting you experience these juicy 20+% APY, only to realize later that the country makes it illegal to transfer the money out – or you're due some extra fees, and taxes, and surcharges, and more predatory exchange rates – and in the end if you succeed to get your money out and factor in funny money devaluation and USD inflation, you end up barely making more profit than you'd get in a more stable economy.

That's assuming said foreign institutions are willing to deal with a US citizen in the first place.

Re: U.S. interest rates have soared everywhere but savings accounts

#98

Post by beowulfey »

lijogdfljk wrote: post #66
tppiotrowski wrote: post #46

Earlier quoted context omitted.

I think rising interest rates should depress the value of housing. With a higher interest rate you can't afford as much principal so you start bidding on cheaper houses.

I had this debate last night. Where i'm undecided is if this works when a housing market is propped up by cash. Eg both houses and land purchases (something i'm trying to do) are quite a difficult market due to cash offers being consistently present. Ie a new family won't have 500k in cash and their loan offer isn't as good as a cash offer. It happened to me several times when i was buying my home ~6 years ago, 250k…

Does anyone know the numbers on whether the high cash offers are from corporate investors vs. exceptionally rich individuals? Given the sheer number of cash offers I'm inclined to think it's the former, but I honestly have no idea.

But yes, you're absolutely right that cash buyers should have way fewer concerns about interest rates.

Re: U.S. interest rates have soared everywhere but savings accounts

#99

Post by rufus_foreman »

kobalsky wrote: post #62
azth wrote: post #40

Serious question: inflation seems to only be getting higher (is it 8%+ now?) the Fed's increasing of the interest rate is causing a stock market crash. So if one puts their money into assets, those are decreasing in price due to the fed, and if someone is holding cash that's also going down in value due to inflation. What's the solution?

Bumping because I'm really interested in this answer. For me the obvious answer is, if the fed actions means it's more expensive to borrow now, then lend your money. The question is how and where. Bonds? Which bonds? TIPS don't seem to have a rate that would protect me from inflation. Gold? There's enough volatility there to lose more than 2 years worth of inflation with a badly timed entry, and I if I have to time m…

Series I Bonds, although you are limited to $10,000 a year.

Re: U.S. interest rates have soared everywhere but savings accounts

#100

Post by ItsMonkk »

lijogdfljk wrote: post #66
tppiotrowski wrote: post #46

Earlier quoted context omitted.

I think rising interest rates should depress the value of housing. With a higher interest rate you can't afford as much principal so you start bidding on cheaper houses.

I had this debate last night. Where i'm undecided is if this works when a housing market is propped up by cash. Eg both houses and land purchases (something i'm trying to do) are quite a difficult market due to cash offers being consistently present. Ie a new family won't have 500k in cash and their loan offer isn't as good as a cash offer. It happened to me several times when i was buying my home ~6 years ago, 250k…

Well, what happened in 2008? Stocks down 50%, housing down 30%. Buying housing was a better investment than stocks. But as both were down, simply holding cash was better. But that's only because the wealthy were hedging against a hyper-inflation scenario, and that scenario didn't occur.

In fact you can see this hedging as a reason for the inflation in the first place. Even things like target date funds that need to have 10%(or some other number) bonds have this same issue. When the interest rate rises, the value of bonds gets wiped out. But target date funds need to have a set percentage, so all of these indexes rush INTO bonds at this moment. The more stocks are up in this moment, the more these passive investments are selling stocks and buying bonds.

You can imagine that as stocks go up, the more stocks go up, wealthy money managers buy more and more homes in the exact same way they buy bonds. When they see that we might be about to hit an inflection point with stocks anticipated to go down, they should be selling stocks and buying whatever does better. In 2008, housing did better, so they'll probably do it even more with history on their side. Now that houses are up 30%, maybe they look for another investment. There it is, used cars. There it is, lumber, steel, oil. There it is, commodities futures. All with unprecedented demand, not from common folk, but the wealthy.

Hedging against a stock market crash causes inflation, and inflation causes interest rate rises, which is a positive feedback loop that causes more hedging, which causes more rate rises until the common folk can not handle it, in which case the economy falls over. At the end of the day we get a recession, massive job loss, and the Fed resets the interest rate back to zero and they start selling their assets and re-buying stocks. Cycle starts again anew.

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