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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

#291

Post by zinekeller »

cbhl wrote: post #281
everybodyknows wrote: post #280

Earlier quoted context omitted.

For anyone who filed a 4868, and expects a refund, note that up to $5000 of it can be claimed in the form of paper I-bonds. This limit is independent of the $10000 online bond limit. There is a nuisance factor in that some portion will be delivered in small denominations -- down to $50. If you're using TurboTax, the necessary checkbox is well hidden. Look for a "more options" tab or some such, IIRC.

This seems like oddly-timed tax advice -- the filing deadline (without extensions) was Apr 18 and today is Apr 23.

While it is unfortunately ill-timed, it's not like an expired discount code - it's still usable next year.

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

#292

Post by rrrrrrrrrrrryan »

Bluecobra wrote: post #288
twblalock wrote: post #256

After one year, I-bonds are pretty similar to savings accounts and they are indexed to inflation. Your money won't grow, but it won't shrink either -- and as Treasury bonds they are the lowest-risk investment that exists. If you buy some today, they will pay 7.12% for the next 6 months. After that they will probably be adjusted to pay even more, based on the current inflation rate. There are two major catches: you ha…

In addition to I bonds you can also buy up to $10K in EE bonds per year as well. These double in value, but you have to hold on to them for 20 years until they mature. I treat this as as retirement savings. For example, if you buy them when you are between 40 and 50 years old, you will have $200K of risk free money by age 70. Also, both I bonds and EE bonds are tied to the individual. If you are married your spouse c…

That's a 3.6% interest rate with your money locked up for 20 years. Personally, I'd rather risk that in index funds - your money would be much more accessible, the expected return would be greater, and the risk of the investment dive-bombing on a 20 year timeline is rather low.

I guess cool that it's guaranteed, though, and might make sense as part of a diversified retirement account.

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

#293

Post by hrez »

rrrrrrrrrrrryan wrote: post #292
Bluecobra wrote: post #288

Earlier quoted context omitted.

In addition to I bonds you can also buy up to $10K in EE bonds per year as well. These double in value, but you have to hold on to them for 20 years until they mature. I treat this as as retirement savings. For example, if you buy them when you are between 40 and 50 years old, you will have $200K of risk free money by age 70. Also, both I bonds and EE bonds are tied to the individual. If you are married your spouse c…

That's a 3.6% interest rate with your money locked up for 20 years. Personally, I'd rather risk that in index funds - your money would be much more accessible, the expected return would be greater, and the risk of the investment dive-bombing on a 20 year timeline is rather low. I guess cool that it's guaranteed, though, and might make sense as part of a diversified retirement account.

"Minimum term of ownership: 1 year"

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

#294

Post by samspenc »

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?

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

#295

Post by hestefisk »

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…

Banks don’t lend out 10x their deposits. There’s something called loan-to-deposit ratio, which has to sit around 80% for a healthy, well-run bank.

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

#296

Post by chii »

twblalock wrote: post #289
Bluecobra wrote: post #288

Earlier quoted context omitted.

In addition to I bonds you can also buy up to $10K in EE bonds per year as well. These double in value, but you have to hold on to them for 20 years until they mature. I treat this as as retirement savings. For example, if you buy them when you are between 40 and 50 years old, you will have $200K of risk free money by age 70. Also, both I bonds and EE bonds are tied to the individual. If you are married your spouse c…

The downside of the EE bonds is they don't grow linearly. They are guaranteed to be worth double their original value via a one-time adjustment at the 20 year mark if they haven't already doubled -- and at today's rates they definitely won't double until then. If you need to sell them before the 20th anniversary they will barely be worth more than their original value, and in real terms they will be worth far less be…

doubling after 20 years is approx. 5% growth per year (locked in).

It's not that great an investment, but it does make sense to use it as a portion of your portfolio for retirement. I would imagine you'd put around 5-10% of your total networth in this form - may be even stagger it over time (e.g., put in 1% every year starting from 40). This can exist in lieu of bonds in your portfolio - though i would perhaps split it 50/50 with your bond allocation (which gives you some liquidity early if you truly need it).

I would want to have more invested in equities as their potential for growth is much higher, and over the long term, ought to beat inflation (as long as you purchase a market weighted index).

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

#297

Post by chii »

rrrrrrrrrrrryan wrote: post #292
Bluecobra wrote: post #288

Earlier quoted context omitted.

In addition to I bonds you can also buy up to $10K in EE bonds per year as well. These double in value, but you have to hold on to them for 20 years until they mature. I treat this as as retirement savings. For example, if you buy them when you are between 40 and 50 years old, you will have $200K of risk free money by age 70. Also, both I bonds and EE bonds are tied to the individual. If you are married your spouse c…

That's a 3.6% interest rate with your money locked up for 20 years. Personally, I'd rather risk that in index funds - your money would be much more accessible, the expected return would be greater, and the risk of the investment dive-bombing on a 20 year timeline is rather low. I guess cool that it's guaranteed, though, and might make sense as part of a diversified retirement account.

> the risk of the investment dive-bombing on a 20 year timeline is rather low.

it's not that the risk is low - it's just that you cannot know if the equities wouldn't fall at the 20 yr mark, just you need to liquidate it to retire. You have to slowly decrease your % of equities the closer you are to retirement.

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

#298

Post by chii »

lsiq wrote: post #225
neilwilson wrote: post #163

Earlier quoted context omitted.

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.

Thank you, was hoping for someone to point this out. Banks don't take deposits and they don't lend money. Banks create money. When they "lend," what they are legally doing is purchasing a newly issued security for your home. And they are doing so with created money, that money is not transferred from some other account. Similarly when you "deposit," the money is legally now the bank's. The bank now has a liability to…

> create credit to finance existing asset purchases (as opposed to financing new investment)

the seller of that purchase transaction will have received the financing credit as cash.

This cash is, in most cases, invested. If the seller had a loan, they might've repaid the loan - but then this repayment would in part, cancel out the credit creation the buyer's bank did. The net outcome, if it was positive, is the profit that the seller obtained, and this is real wealth created.

This wealth is often reinvested somewhere - either to purchase existing assets (in which case, this cycle repeats), or to finance a new asset/investment (like a startup).

However, the purchasing of existing assets is required for this system to work - like an exit strategy for the initial investors of that asset.

Banks doing lending _could_ cause a bubble, if the rate of interest is too low compared to the growth in the economy (the assumption is that there's a limit to how fast you can grow new assets). Whether the past decade since the GFC had too low an interest rate, is up for debate.

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

#299

Post by nopzor »

chii wrote: post #296
twblalock wrote: post #289

Earlier quoted context omitted.

The downside of the EE bonds is they don't grow linearly. They are guaranteed to be worth double their original value via a one-time adjustment at the 20 year mark if they haven't already doubled -- and at today's rates they definitely won't double until then. If you need to sell them before the 20th anniversary they will barely be worth more than their original value, and in real terms they will be worth far less be…

doubling after 20 years is approx. 5% growth per year (locked in). It's not that great an investment, but it does make sense to use it as a portion of your portfolio for retirement. I would imagine you'd put around 5-10% of your total networth in this form - may be even stagger it over time (e.g., put in 1% every year starting from 40). This can exist in lieu of bonds in your portfolio - though i would perhaps split…

more like 3.6% with compounding interest…

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

#300

Post by sizzle »

neilwilson wrote: post #163
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.

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.

“They create their own money against financial assets they buy from you with that money.“

This is eerily similar to the common crypto exchanges that take your fiat and sell you their exchange tokens they are minting out of thin air. The market decides the value of these made up exchange tokens e.g. Binance Bnb tokens

I’m sure there are many other interesting crypto parallels to what banks do with money behind closed doors. Anyone else got some good examples to share?

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