Savings accounts will pretty much never pay more than the Federal Funds (prime) rate. Back in 2019 when the prime rate was 2.25-2.50, the high yield online savings accts were paying 25 bps under the prime rate. As the Fed starts hiking the prime rate over the summer, high yield savings (Marcus, discover, etc) will start yielding more.
U.S. interest rates have soared everywhere but savings accounts
161–170 of 356 posts
Re: U.S. interest rates have soared everywhere but savings accounts
#162Earlier quoted context omitted.
> 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.
The problem is not with liquidity or transaction costs. Let's assume for the sake of the argument that you can always buy or sell at the mid price without any additional fees.
The reference to "the market's whim with respect to price" means that if you bought $1000 of 10-year treasuries at the beginning of the year and you sell them now you'll get less than $900.
Re: U.S. interest rates have soared everywhere but savings accounts
#163The 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.
Banks don’t lend money out. Never have, never will.
Banks are discount houses. They create their own money against financial assets they buy from you with that money.
They are factories, not warehouses.
Deposit interest rates aren’t going up because there’s nowhere else the money can go. Nobody wants be the retail to wholesale middleman at present.
Re: U.S. interest rates have soared everywhere but savings accounts
#164Real yields matter. It's an inflation tax. If inflation is high and the interest rates are low. This tax is on you for holding currency or currency likes. Bonds for example are literally dumb to buy. Why are people buying them? They are legally required to buy them in some cases. What happens is that those 'savings accounts' are paying the inflation tax. Whereas someone with a mortgage at say 2% and inflation is 8%.…
You say failure but this is yet another successful grift. Most of them bought homes decades ago and are cashing out at 3-5x without putting any money into it. They're retiring very well off, hence the cost of retirement communities. We will get through housing painfully only to have to deal with retirement costs after that.
Please just stop with the thinking you are the only generation that has been or is being screwed. I can assure you, most boomers are not retiring “very well off”.
$400,000, the average price of a home these days, is not a lot of money to live on when one or both might end up needing assisted living. My mother-in-law burned through half that in the last nine months of her life despite having incredible insurance and government pension. Now that is a screwing.
Re: U.S. interest rates have soared everywhere but savings accounts
#165The 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…
Banks and credit unions must maintain a Tier 1 Capital ratio set by regulators. T1C is negatively impacted by large deposits.
Re: U.S. interest rates have soared everywhere but savings accounts
#166Real interest rates are still negative, with inflation being at 9%. So even if the yield is 3%, on the 5 year treasury, the real yield is -6%. What fool would lend someone 100 dollars to get back 94 dollars in 5 years? The biggest sucker is the person who owns a 30 year treasury, and if the Fed starts selling its treasuries, good luck getting a reasonable price for it.
Re: U.S. interest rates have soared everywhere but savings accounts
#167Real yields matter. It's an inflation tax. If inflation is high and the interest rates are low. This tax is on you for holding currency or currency likes. Bonds for example are literally dumb to buy. Why are people buying them? They are legally required to buy them in some cases. What happens is that those 'savings accounts' are paying the inflation tax. Whereas someone with a mortgage at say 2% and inflation is 8%.…
Except boomers also own a large portion of housing and stocks. The boomer generation benefited the most from the Fed's money-printing.
You people are exhausting with this shit.
When the market tanks as it inevitably will, you can enjoy the sweet salty boomer tears.
Re: U.S. interest rates have soared everywhere but savings accounts
#168Earlier quoted context omitted.
> 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.
Yes treasuries are liquid, but a 100 bps rise in yield in a 10y bond means the face value is 10% less. Duration risk is (bps yield increase * years) where 100 bps is 1%.
Duration risk matters a lot less with the shorter dates issues.
Re: U.S. interest rates have soared everywhere but savings accounts
#169Clickbait 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)
The yield on the 1 year t-bill has gone from 0% to 2% That’s where I’ll be keeping cash I’d otherwise keep at the bank, for now.
except rates are gonna keep going up, meaning your principle would decline in value.
Re: U.S. interest rates have soared everywhere but savings accounts
#170The 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…
> 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".
Reconsider what your stating here. If I have 10$, and I can therefore lend out 100$, but I only have requests to borrow 50$, then I have "too much cash". If I however had requests to borrow 200$, the I would need to find another 10$, for instance by promising someone a higher interest rate on their accounts. The fact that banks do fractional reserve does in no way guarantee that they do not end up having more cash on hand than they need to cover the demand for loans.