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

bloomberg.com

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

#311

Post by chii »

naruvimama wrote: post #181
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?

Inflation is high because of supply shortages and lower production, increasing rates would mean increasing the cost of setting up new supplies or production lines. Manipulating interest rates works when under otherwise normal condition the government wants to prevent overheating economy or to provide stimulus during a down cycle. It is not immediately clear if the rate increases is going to help increase production o…

> Manipulating interest rates works when under otherwise normal condition

back in the oil crisis of the 70's, the inflation was high because oil embargo made everything that need oil (which was everything) more expensive.

Couldn't you make the same argument back then, that increasing interest rates isn't going to end the embargo and lower inflation? And yet, the then Fed chair did increase interest rate to combat inflation (granted, the inflation back then was much worse than now).

So perhaps this time, it's different - covid supply shocks playing out is not going to get resolved by interest increases. By increasing rates, the only result is to reduce demand, which is just another way of saying those who can't afford it will have to sacrifice, and lower their quality of life.

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

#312

Post by chii »

_wldu wrote: post #116
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?

Consider buying stock in companies that produce real products that everyone needs. Food, cleaning supplies, toilet paper, hygiene, etc. It's hard to go wrong doing that.

But everyone already knows of this fact - and so the price of those stocks would already reflect the value under an (expected) inflationary environment.

The value would only grow _if_ the inflationary environment is worse than expectations, and people sacrifice even more discretionary spending to buy consumer staples. if the inflationary environment isn't as bad as expectations, then these companies would be out-performed by other, higher growth, discretionary goods companies.

There's no such thing as a risk free investment.

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

#313

Post by cheriot »

samspenc wrote: post #294
cheriot wrote: post #244

SoFi is offering 1.25% but Vanguard's short term treasury fund (VGSH) is at 2.35% if you're ok with mild capital risk.

Isn't the risk with any bond funds -- like Vanguard's short term treasury fund (VGSH) -- that their price goes down as yield goes up? I just checked on Google Finance and it looks like it has gone down 4.18% over the past 1 year and negative 3.72% over the past 6 months, so you would be upside down overall if you had invested in it recently?

yes, exactly, that's why I mention capital risk. Much less than stocks or corporate bonds, but more than an FDIC insured account.

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

#314

Post by abnercoimbre »

Asparagirl wrote: post #241
danhak wrote: post #185

Earlier quoted context omitted.

I'm already maxed out at $10,000 for this year.

Got kids? Look up “minor” accounts. Got an LLC or a family trust of some sort? Look up “entity” accounts.

So I can purchase bonds as an individual and also as the owner of my LLC?

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

#315

Post by coolspot »

TimJRobinson wrote: post #310
BayAreaEscapee wrote: post #189

Earlier quoted context omitted.

The obvious problem is that there is nowhere to hide. All markets are overvalued by virtually any historical metric. At least if you take the -6% real hit, at least you can know and predict what the hit is.

You can fairly easily get a safe 10% (20% in bullish times) return on USD in crypto markets. Still high because most people haven't figured it out yet and there isn't good enough regulation for institutions.

> Safe

> Crypto

Choose one

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

#316

Post by Asparagirl »

abnercoimbre wrote: post #314
Asparagirl wrote: post #241

Earlier quoted context omitted.

Got kids? Look up “minor” accounts. Got an LLC or a family trust of some sort? Look up “entity” accounts.

So I can purchase bonds as an individual and also as the owner of my LLC?

Yes! I did this last year and plan to do it again this year.

I have a one-year-old single-member LLC for my plant h̶o̶b̶b̶y̶ very small business. I grow and sell fancy houseplants, unusual chili peppers, hopefully some mostly-dahlia bouquets later this summer, etc. I mainly sell on Etsy and eBay. Usually, forming and keeping up an LLC would probably be overkill for a little business like this, but starting in 2021, the state of California waived their usually ridiculous LLC formation fees and annual LLC fees, to help people start new small businesses after the pandemic. So I jumped on the wagon and put my h̶o̶b̶b̶y̶ business into a real LLC.

So now my husband and I have a bunch of I Bonds in our names/SSNs at TreasuryDirect, and each of our kids has a "minor" account linked to our account there, and they each have I Bonds in their names/SSNs -- and my little houseplant LLC has its own "entity" account at TreasuryDirect, based on its EIN, with me as the authorized representative who can buy and sell on behalf of the LLC. And so the LLC owns I Bonds in its own name, even though this is a single-member LLC, just me. It doesn't even merit getting its own tax return, it just reports its (my) teensy profits on my personal Schedule C, but the US Treasury treats it as a real separate entity from me even if the IRS does not.

Heck, I think the LLC as an entity now owns slightly more in I Bonds than it made in profit last year.

Now, if by some miracle the state of California should decide to continue its temporary pandemic policy to not charge residents to form and maintain LLC's, one could hypothetically set up many such new single-member LLCs, each with its own EIN of course, and each LLC could then set up its own TreasuryDirect account, and each account could buy I Bonds or other Treasuries...

Also noteworthy: you don't get an annual 1099 from TreasuryDirect unless you sell the bonds that calendar year. The interest only formally accrues to you upon a sale. And they're federally tax-free anyway.

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

#317

Post by meissler »

Spooky23 wrote: post #197
anm89 wrote: post #144

Earlier quoted context omitted.

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

“Doubled” from rock bottom. The government flooded the zone with cash to keep the economy alive. Hell, I’m paying a 2.25% interest rate on my home. People are running around like chickens about inflation this and inflation that. The only meaningful metric is gas prices.

Have you gone grocery shopping lately?

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

#318

Post by Asparagirl »

toomuchtodo wrote: post #270
Asparagirl wrote: post #236

Earlier quoted context omitted.

Trusts, LLC’s, and other businesses can also open up “entity accounts” at TreasuryDirect under their EIN’s, for buying up to $10k of I Bonds per year, or other types of treasuries. And those of us with kids under eighteen years old can open up “linked” minor sub-accounts in their names, which are linked to the parent’s primary account at TreasuryDirect but which can buy up to $10k of I Bonds per year in each child’s…

I bonds for children are considered irrevocable gifts, and the proceeds must be used for the benefit of the child (to do otherwise is considered tax fraud). Important context to know before purchasing.

So the same rules as UTMA accounts, yes? Except the kids’ UTMA accounts at the local bank get essentially 0% interest rates (or slightly more with long-term CD’s), while TreasuryDirect I Bonds get them over 7%.

And perhaps this will also provide an incentive for the kids to not blow all their money so easily some day, when they’re of age to receive it, since the bonds if unsold will keep accumulating interest for 30 years (by which point the kids will be middle-aged and hopefully more mature), the clunky TreasuryDirect web interface makes it hard for them to sell and transfer proceeds anyway, and none of it is linked to a debit card like an UTMA bank account or UTMA brokerage account. Sounds like a pretty good piggy bank.

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

#319

Post by Rastonbury »

marcosdumay wrote: post #224
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)

> hardly soaring It's double the previous rate. I don't understand why central banks always use fixed increment sizes.

Predictability, they don't want to introduce too much volatility.

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

#320

Post by Rastonbury »

throwawayboise wrote: post #155
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)

> the fed rate went from 0.25% to 0.5% hardly soaring That's a 100% rise in interest rates, which many people would call "soaring".

It is to people who are unaware of the context, which BBG is using to try to sensationalise. The same rate was 2.25% in 2018, and there may be up to 6 hikes of 25bps each this year alone. The fed rate is going to "soar", it just hasn't yet
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