U.S. interest rates have soared everywhere but savings accounts • Hacker News Board

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

#141

Post by appleiigs » Sat, Apr 23, 2022, 6:34 PM UTC

clairity wrote: post #129

gdurham wrote: post #77

The issue is that there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash. Banks make money by lending money out, in times where banks are strapped for cash on hand, you will see interest rates increase. I don’t see this changing in the near future.

> "...there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash." and folks wonder why banks are so strictly regulated... no, banks are never sitting on too much cash unless they've made a marketing and/or an operational error. most banks are highly levered, meaning they're lending out, say, 10× the cash they hold, so they never "have too much cash on hand". q…

Yes, they are sitting on too much cash. There was a WSJ article titled "CFOs Seek High Returns on Cash, but Banks May Be Slow to Raise Rates". The article says "That's due to the size of the cash piles sitting at banks - both from companies and consumers - and the loan-to-deposit ratio, which measures the amount of deposits being handed out as loans which has been hovering at decade lows around 60% in recent quarters".

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

#142

Post by gkuan » Sat, Apr 23, 2022, 6:39 PM UTC

JumpCrisscross wrote: post #14

hsnewman wrote: post #6

Just go for I-Bonds instead.

> go for I-Bonds instead Series I bonds promise a 0% real yield. TIPs [1] are currently offering between 0.5% and 1.6% of real yield [2]. Plus, no cap. [1] https://www.treasurydirect.gov/indiv/products/prod_tipsvsibo... [2] https://www.treasurydirect.gov/instit/annceresult/annceresul...

Where are you seeing real yield on TIPS? There is certainly that 0.125% positive fixed coupon rate subject to that principal inflation adjustment. Looking at https://www.treasurydirect.gov/instit/annceresult/annceresul... TIPS tab, all the recent auctions had a high yield of [1] https://tipswatch.com/2022/04/21/new-5-year-tips-auctions-wi...

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

#143

Post by anm89 » Sat, Apr 23, 2022, 6:43 PM UTC

clairity wrote: post #129

gdurham wrote: post #77

The issue is that there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash. Banks make money by lending money out, in times where banks are strapped for cash on hand, you will see interest rates increase. I don’t see this changing in the near future.

> "...there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash." and folks wonder why banks are so strictly regulated... no, banks are never sitting on too much cash unless they've made a marketing and/or an operational error. most banks are highly levered, meaning they're lending out, say, 10× the cash they hold, so they never "have too much cash on hand". q…

no. this is ridiculous. you've demonstrated a total lack of understanding of how a bank manages its balance sheet.

Banks are awash in reserves and in the basel3 regime these reserves fulfill a similar role to cash in fulfilling bank balance sheet construction requirements. so the banks are not constrained from a lending perspective by a lack of cash and therefore have no incentive to raise rates to attract new deposits to create a base to lend off of.

so from the perspective of why rates are low, it's absolutely because banks are sitting on a lot of cash.

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

#144

Post by anm89 » Sat, Apr 23, 2022, 6:46 PM UTC

Rastonbury wrote: post #10

Clickbait title, the fed rate went from 0.25% to 0.5% hardly soaring. Savings accounts previously paid like 0.04% according to article, that's because they need margin and they can keep them low cuz people won't swap banks for half a percent (not that it'll get there anytime soon)

mortgage rates have doubled in the last two months, the 20 year has doubled in the last two months, rhe policy rate had doubled in the last two months (admittedly a small nomination amount) and is about to double again in a week.

so although overall rates are still low, I think it's pretty fair to say they have exploded

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

#145

Post by ac29 » Sat, Apr 23, 2022, 6:47 PM UTC

JumpCrisscross wrote: post #80

victor106 wrote: post #79

So treasures yield 3%. Why can’t I just buy these bonds and get a 3% rate? What am I missing? https://www.cnbc.com/amp/2022/04/19/us-bonds-treasury-yields...

> Why can’t I just buy these bonds and get a 3% rate? What am I missing? Savings accounts can be drawn with zero notice. They're essentially rolling overnight. A 10-year Treasury cannot be redeemed before 10 years. (It can be sold, though at the market's whim with respect to price.)

I think you're underrating the liquidity of treasuries. For all practical purposes, a treasury is as liquid as a savings account. Yes, the market will take a little bit in the bid/ask spread.

Note: I am not suggesting holding long term treasuries as a substitute for a savings account here, though a ladder of short term treasuries could be an alternative when conditions are favorable, like now.

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

#146

Post by anm89 » Sat, Apr 23, 2022, 6:50 PM UTC

imtringued wrote: post #123

Youden wrote: post #52

Earlier quoted context omitted.

Over the past 10 years, inflation in India has typically been ~5% [0] and the currency has also fallen against the USD at ~4% per year [1], so I don't think this is a good idea. [0]: https://tradingeconomics.com/india/inflation-cpi [1]: https://www.xe.com/currencycharts/?from=INR&to=USD&view=10Y

If countries adopted negative interest rates we could stop the inflation nonsense and then you could easily compare countries based on their interest rate. In this case the Indian interest rate would be somewhere between -1% and 0% instead of 5% inflation and 4-5% interest.

this is totally backwards. negative interest rates cause inflation, not the other way around

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

#147

Post by Rastonbury » Sat, Apr 23, 2022, 6:52 PM UTC

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…

Bonds prices are going down due to interest rate increases. They traditionally are the hedge against stocks falling. There is no easy answer for this.

Don't make the mistake of increasing your risk appetite to chase perceive erosion of value from inflation. Inflation happen regardless, everyone wishes they could find a 8% risk free investment, they do not exist. If you're not a trader stick to an allocation you're comfortable with. The worst outcome is you try to trade in a bearish market and end up down, while inflation is still going.

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

#148

Post by gkuan » Sat, Apr 23, 2022, 6:56 PM UTC

gkuan wrote: post #142

JumpCrisscross wrote: post #14

Earlier quoted context omitted.

> go for I-Bonds instead Series I bonds promise a 0% real yield. TIPs [1] are currently offering between 0.5% and 1.6% of real yield [2]. Plus, no cap. [1] https://www.treasurydirect.gov/indiv/products/prod_tipsvsibo... [2] https://www.treasurydirect.gov/instit/annceresult/annceresul...

Where are you seeing real yield on TIPS? There is certainly that 0.125% positive fixed coupon rate subject to that principal inflation adjustment. Looking at https://www.treasurydirect.gov/instit/annceresult/annceresul... TIPS tab, all the recent auctions had a high yield of [1] https://tipswatch.com/2022/04/21/new-5-year-tips-auctions-wi...

TIPSWatch also wrote up a comparison between I Bonds and TIPS [1] from September 2021.

[1] https://tipswatch.com/2021/09/07/i-bonds-vs-tips-whats-the-b...

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

#149

Post by SnowHill9902 » Sat, Apr 23, 2022, 7:01 PM UTC

PopAlongKid wrote: post #24

Rastonbury wrote: post #10

Clickbait title, the fed rate went from 0.25% to 0.5% hardly soaring. Savings accounts previously paid like 0.04% according to article, that's because they need margin and they can keep them low cuz people won't swap banks for half a percent (not that it'll get there anytime soon)

For most of the last decade, IRS statutory rate for underpayment/overpayment of tax was 3%, an historically low number. It briefly spiked up to 6% in 2019, then fell back to 3% for a while, but last quarter went back up to 4%, with more increases expected.[0] This rate applies to anyone who takes "too long" to claim a refund or pay a tax liability, so it is basically a zero-risk rate that applies to everyone regardle…

It’s not a zero-risk rate, it’s just a “reasonable rate which is painful enough to make you prefer paying than not paying while at the same time not seeming too high as to be abusive”. Why are late fees $350, $450 or whatever? It’s not a real cost of anything. It’s just a reasonable fee.

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

#150

Post by standardUser » Sat, Apr 23, 2022, 7:07 PM UTC

clairity wrote: post #129

gdurham wrote: post #77

The issue is that there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash. Banks make money by lending money out, in times where banks are strapped for cash on hand, you will see interest rates increase. I don’t see this changing in the near future.

> "...there is no incentive for banks to increase interest rates on accounts as they are already sitting on too much cash." and folks wonder why banks are so strictly regulated... no, banks are never sitting on too much cash unless they've made a marketing and/or an operational error. most banks are highly levered, meaning they're lending out, say, 10× the cash they hold, so they never "have too much cash on hand". q…

Sounds like you're calling for a return to Glass–Steagall, which was repealed by a bipartisan vote under a Democratic president in 1999.

https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legisla...