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 have to wait at least 1 year before you cash them out, and a person can only buy 10k in I-bonds per year.
After the first year is over, selling I-bonds and getting access to the cash takes a few business days.
I've been tiering my emergency savings based on how many redeemable I-bonds I have. I have enough money in the bank to cover emergencies I might need to pay for very quickly -- things like plumbing problems, car repair, etc. The rest of my emergency fund is going into I-bonds. If I have a longer-term need for savings, like losing my job, I don't need all of my savings right away and I can wait for the amount of time it takes to cash out I-bonds.
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.
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 can also buy $20K in bonds per year as well.
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". quite the opposite. banks continually lobby regulatory agencies to raise their leverage thresholds so they can lever up even more and rake in more of that sweet, nearly risk-free[0] cash flow.
that they don't raise savings rates is purely out of greed, not necessity. they're also under no competitive pressure to do so, which indicates a malfunctioning market (functioning markets are by definition competitive). and more galling, they charge you hidden fees out the wazoo for the "privilege" of banking in a mine field.
banks are core infrastructure, much like roads and housing. i'd rather go back to a simpler form where banks were only allowed to make money on the spread between lending and savings rates, making them boring and having to compete (with higher savings rates, for example) for your business. all the risk-taking extensions to banking can still exist, just in a separate, firewalled entity with no access to that (nearly) risk-free cash flow.
[0]: risk-free in the finance sense of being free of idiosyncratic risk, not systemic risk.
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)
It's a (granted, well deserved) PR piece for Goldman Sachs. Their "popular consumer bank Marcus" is called out early for "offering individuals a yield in excess of 2%" in 2019. Its 50 bps is then compared to "Bank of America Corp.’s 0.04% or JPMorgan Chase & Co.’s 0.02%."
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 regardless of their credit status.
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
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?
Have a diversified portfolio. Rational Reminder went over the data in "The Ultimate Inflation Hedge":
> Is it possible to hedge your investments against different levels of inflation? This is the question we ask in today's episode, as we run through a variety of different investment approaches and commodities. While the answer may not come as a huge surprise, it is definitely worth the walk-through and getting to grips with what the literature can tell us in each scenario. After rounding up some news and a few reviews relevant to our usual subject matter, we dive straight into this topic, tackling the performance of stocks and bonds, gold, international stocks, value stocks, and more! We also share some general thoughts and questions to ask during periods where inflation is high, before positing our view that there is no single successful hedge against inflation, but rather our usual position of an adjusted and diversified portfolio will serve you as well in this regard as in others. We finish off this episode with a few of our usual quick cards, and this week's disturbing bad advice! So tune in to hear all about what you should know about expected and unexpected inflation and a whole lot more!
If able, perhaps focus on your earning potential. We’ve had a forty-year run of asset price inflation relative to wage inflation. We may have hit the end of this period and will see a realignment with wages increasing at a faster pace than capital assets, similar to what happened in the 1970s. The Asset Economy is a somewhat dry but interesting book that presents a more academic take on the economic patterns of the last forty years.[1] The increase in unionization efforts, anti-trust, and the inability of the FED to manage inflation seem to point in this direction.
Otherwise, monopolies still seem strong for now with pricing power. Areas the government will print money to fund also seem like a decent bet: defense, climate, …? And you can try to maintain purchasing power with gold or crypto or real estate (in non-bubble areas). But we may be entering some challenging times for those with assets.
If you have inflation, something is going up in dollar terms. The answer is "real" assets: physical assets that have an intrinsic worth due to their substance and properties. Real estate, infrastructure, and commodities are all examples.
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 my entry I'm trading, and I'm not a trader so I don't like it.
I know mentioning cryptos is sometimes taboo on HN, but if I lived in the US/EU I would convert a some portion of my savings into stablecoins and spread them out into some interest accounts to try to minimize counterparty risk. Their APY is running along inflation for the time being. At least until the dust settles and it's clear where to put your money.
Consensus opinion seems to be that peak annual inflation already is behind us and mostly it was spectacular because of low March 2021. If inflation increases in the remainder of 2022, all the economic forecasts, and the federal reserve policy, are totally wrong.
Yearly inflation seems to be going up mainly due to how it is calculated ... Monthly inflation seems to be going mostly sideways (although it has increased the last 3 months).
There's not (yet) been a market crash ... If you look back a month or a year, it's been mostly sideways too.
It may be the beginning of a horrible market crash ... But it may not ;). Trying to time the market, you're just as likely to lose as to win. Diversifying is always good; the stock market has usually provided the most growth long term. Unless you need the money soon, close your eyes and keep your money in the market.
Real 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.
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.
Someone betting that we'll hit a deflationary recession/crash where inflation will plummet along with interest rates, making their locked in interest rate advantageous?
Here in Canada at TD Bank their "High Interest Savings Account" for $0 to $4,999.99 the interest rate is 0.000%. Highly deceptive for them to call it that with literally 0% interest.
Consumers have been beaten down an now don't expect interest on savings account to amount to much. There are a small group that chase the limited time 5% offers, but like all corps, banks are taking that margin for profits.
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 "government bank insurance" while dodging that it's hardly the FDIC.
Is there some regulatory angle that prevents it? I had always heard some foreign banks are uneasy about taking on American customers due to having to deal with the American tax infrastructure, but that wouldn't squash the entire product category.
T-Mobile Money offers a 1% checking account and saving account. Both FDIC insured. I'm not exactly sure how they can afford this, or how long it will last, but it's the highest rate account I've found so far, and you don't need to be a T-Mobile customer.
Right before the 2008 downturn, I had an ING Direct (now Capital One) savings account, at that time with an APR over 8. At once point in the early 2000s it was doing a hell of a lot better than that.
It never recovered. I never saw that rate go above 1% ever since.
Why would they? If there were many small banks competing with each other for the consumer's money, the free market mechanics would have quickly brought the interest rates up.
But hey, who needs competition. Let the banking sector be run by a bunch of buddies that go to the same golf club, and if they cock up, they can always schmooze the regulator to give out a hefty bailout package. Who would have thought the consumer will get screwed?
When I first moved to the US I was setting up my first US bank accounts.
The credit union bragged about how high there savings account interest rates were. My honest reply was to say I was surprised they gave monthly rather than annual interest rates. When they corrected me to say that it was the annual interest rate I laughed, this was a savings account with fees even.
Unsurprisingly the interest rates on everything other than mortgages was in line with those in NZ. Mortgage rates were vastly lower, but 4 or so years later the economy collapsed due to terrible mortgage practices.
Is this a US problem? In India you can easily get 5% interest in savings account. Maybe an opportunity to move money to Indian banks through crypto and then get it back after getting that sweet interest.
Why is this surprising? Overnight rates are still 0.25%, and 1-month bills are 0.46%. Online savings accounts are at 0.6-0.65% now and have not fallen below 0.5% the whole pandemic. The oddity is why they've not fallen to 0% before, but that is because there is an effective duration of savings which may have been shortening recently as rates rise.
As for brick-and-mortar banks still at 0%, going by their low-balance fees, 0.5% probably only covers their overhead, if that.
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 are earning 6%. This generally speaking can be defined as wealth transfers from retirees to a lower generation. Primarily Boomer -> Millennial. This will and is causing lots of animosity between the generations. The boomers quite obviously didnt save enough for retirement and thought they could indebt a lower generation? Hilarious failure.
[+] [-] twblalock|3 years ago|reply
There are two major catches: you have to wait at least 1 year before you cash them out, and a person can only buy 10k in I-bonds per year.
After the first year is over, selling I-bonds and getting access to the cash takes a few business days.
I've been tiering my emergency savings based on how many redeemable I-bonds I have. I have enough money in the bank to cover emergencies I might need to pay for very quickly -- things like plumbing problems, car repair, etc. The rest of my emergency fund is going into I-bonds. If I have a longer-term need for savings, like losing my job, I don't need all of my savings right away and I can wait for the amount of time it takes to cash out I-bonds.
[+] [-] everybodyknows|3 years ago|reply
If you're using TurboTax, the necessary checkbox is well hidden. Look for a "more options" tab or some such, IIRC.
[+] [-] Bluecobra|3 years ago|reply
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 can also buy $20K in bonds per year as well.
[+] [-] emptysongglass|3 years ago|reply
[+] [-] KETpXDDzR|3 years ago|reply
You can create a trust and buy an additional 10k/year.
[+] [-] DenisM|3 years ago|reply
[+] [-] j7ake|3 years ago|reply
[+] [-] gdurham|3 years ago|reply
[+] [-] clairity|3 years ago|reply
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". quite the opposite. banks continually lobby regulatory agencies to raise their leverage thresholds so they can lever up even more and rake in more of that sweet, nearly risk-free[0] cash flow.
that they don't raise savings rates is purely out of greed, not necessity. they're also under no competitive pressure to do so, which indicates a malfunctioning market (functioning markets are by definition competitive). and more galling, they charge you hidden fees out the wazoo for the "privilege" of banking in a mine field.
banks are core infrastructure, much like roads and housing. i'd rather go back to a simpler form where banks were only allowed to make money on the spread between lending and savings rates, making them boring and having to compete (with higher savings rates, for example) for your business. all the risk-taking extensions to banking can still exist, just in a separate, firewalled entity with no access to that (nearly) risk-free cash flow.
[0]: risk-free in the finance sense of being free of idiosyncratic risk, not systemic risk.
[+] [-] neilwilson|3 years ago|reply
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.
[+] [-] Consultant32452|3 years ago|reply
[+] [-] Rastonbury|3 years ago|reply
[+] [-] JumpCrisscross|3 years ago|reply
It's a (granted, well deserved) PR piece for Goldman Sachs. Their "popular consumer bank Marcus" is called out early for "offering individuals a yield in excess of 2%" in 2019. Its 50 bps is then compared to "Bank of America Corp.’s 0.04% or JPMorgan Chase & Co.’s 0.02%."
[+] [-] PopAlongKid|3 years ago|reply
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 regardless of their credit status.
[0]https://www.dol.gov/agencies/ebsa/employers-and-advisers/pla...
[+] [-] danhak|3 years ago|reply
That’s where I’ll be keeping cash I’d otherwise keep at the bank, for now.
[+] [-] anm89|3 years ago|reply
so although overall rates are still low, I think it's pretty fair to say they have exploded
[+] [-] marcosdumay|3 years ago|reply
It's double the previous rate.
I don't understand why central banks always use fixed increment sizes.
[+] [-] gotaquestion|3 years ago|reply
[+] [-] throwawayboise|3 years ago|reply
That's a 100% rise in interest rates, which many people would call "soaring".
[+] [-] azth|3 years ago|reply
[+] [-] throw0101a|3 years ago|reply
> Is it possible to hedge your investments against different levels of inflation? This is the question we ask in today's episode, as we run through a variety of different investment approaches and commodities. While the answer may not come as a huge surprise, it is definitely worth the walk-through and getting to grips with what the literature can tell us in each scenario. After rounding up some news and a few reviews relevant to our usual subject matter, we dive straight into this topic, tackling the performance of stocks and bonds, gold, international stocks, value stocks, and more! We also share some general thoughts and questions to ask during periods where inflation is high, before positing our view that there is no single successful hedge against inflation, but rather our usual position of an adjusted and diversified portfolio will serve you as well in this regard as in others. We finish off this episode with a few of our usual quick cards, and this week's disturbing bad advice! So tune in to hear all about what you should know about expected and unexpected inflation and a whole lot more!
* https://rationalreminder.ca/podcast/150
Stocks generally bounce back, them going down isn't a big deal given the idea of 'buying low'.
[+] [-] poof131|3 years ago|reply
Otherwise, monopolies still seem strong for now with pricing power. Areas the government will print money to fund also seem like a decent bet: defense, climate, …? And you can try to maintain purchasing power with gold or crypto or real estate (in non-bubble areas). But we may be entering some challenging times for those with assets.
1. https://www.wiley.com/en-us/The+Asset+Economy-p-978150954345...
[+] [-] pdog|3 years ago|reply
[+] [-] kobalsky|3 years ago|reply
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 my entry I'm trading, and I'm not a trader so I don't like it.
I know mentioning cryptos is sometimes taboo on HN, but if I lived in the US/EU I would convert a some portion of my savings into stablecoins and spread them out into some interest accounts to try to minimize counterparty risk. Their APY is running along inflation for the time being. At least until the dust settles and it's clear where to put your money.
[+] [-] jeffbee|3 years ago|reply
[+] [-] okaram|3 years ago|reply
There's not (yet) been a market crash ... If you look back a month or a year, it's been mostly sideways too.
It may be the beginning of a horrible market crash ... But it may not ;). Trying to time the market, you're just as likely to lose as to win. Diversifying is always good; the stock market has usually provided the most growth long term. Unless you need the money soon, close your eyes and keep your money in the market.
[+] [-] mise_en_place|3 years ago|reply
[+] [-] BayAreaEscapee|3 years ago|reply
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.
[+] [-] ericd|3 years ago|reply
[+] [-] layer8|3 years ago|reply
Some banks actually offer loans with negative interest: https://amp.theguardian.com/money/2019/aug/13/danish-bank-la... (there are other examples)
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] okaram|3 years ago|reply
[+] [-] newaccount2021|3 years ago|reply
[deleted]
[+] [-] dghughes|3 years ago|reply
[+] [-] downrightmike|3 years ago|reply
[+] [-] mooreds|3 years ago|reply
Wouldn't expect the rate to ever beat inflation, though, since it is risk free (thanks FDIC!).
[+] [-] bitxbitxbitcoin|3 years ago|reply
[+] [-] CottonMcKnight|3 years ago|reply
[+] [-] hakfoo|3 years ago|reply
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 "government bank insurance" while dodging that it's hardly the FDIC.
Is there some regulatory angle that prevents it? I had always heard some foreign banks are uneasy about taking on American customers due to having to deal with the American tax infrastructure, but that wouldn't squash the entire product category.
[+] [-] throwthere|3 years ago|reply
[+] [-] snshn|3 years ago|reply
[+] [-] pitaj|3 years ago|reply
[+] [-] ragingrobot|3 years ago|reply
It never recovered. I never saw that rate go above 1% ever since.
[+] [-] john_moscow|3 years ago|reply
But hey, who needs competition. Let the banking sector be run by a bunch of buddies that go to the same golf club, and if they cock up, they can always schmooze the regulator to give out a hefty bailout package. Who would have thought the consumer will get screwed?
[+] [-] cheriot|3 years ago|reply
[+] [-] victor106|3 years ago|reply
https://www.cnbc.com/amp/2022/04/19/us-bonds-treasury-yields...
[+] [-] olliej|3 years ago|reply
The credit union bragged about how high there savings account interest rates were. My honest reply was to say I was surprised they gave monthly rather than annual interest rates. When they corrected me to say that it was the annual interest rate I laughed, this was a savings account with fees even.
Unsurprisingly the interest rates on everything other than mortgages was in line with those in NZ. Mortgage rates were vastly lower, but 4 or so years later the economy collapsed due to terrible mortgage practices.
[+] [-] frontman1988|3 years ago|reply
[+] [-] pishpash|3 years ago|reply
As for brick-and-mortar banks still at 0%, going by their low-balance fees, 0.5% probably only covers their overhead, if that.
[+] [-] incomingpain|3 years ago|reply
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 are earning 6%. This generally speaking can be defined as wealth transfers from retirees to a lower generation. Primarily Boomer -> Millennial. This will and is causing lots of animosity between the generations. The boomers quite obviously didnt save enough for retirement and thought they could indebt a lower generation? Hilarious failure.