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According to my dad, savings accounts used to actually be worth using when he was a kid. The interest rate meant you would actually earn a (relatively) substant

According to my dad, savings accounts used to actually be worth using when he was a kid. The interest rate meant you would actually earn a (relatively) substantial amount of money if you put extra cash in there and left it for 10 or 20 years. But these days you'd only have gained a few dollars in the same amount of time. Savings accounts are pointless now.

JoshTriplett 10y ago
Even a decade ago, "high-yield savings accounts" were a thing, earning 5% interest. But that occurred during a time when the federal funds rates were quite high as well, and inflation had a comparable rate, making the interest rate illusionary. In practice, savings accounts are never likely to significantly outpace inflation.
ghaff 10y ago
Well, and for fairly long stretches of time over the past fifty years or so, money that you stuck under the mattress or otherwise in non-interest bearing accounts was taking a fairly substantial hit in value every year due to inflation. Currently, the return on just about any near-zero risk investment (CDs, Treasuries, bank savings accounts) is so near zero return that it's probably not even worth dealing with for any modest sum of money.
herge 10y ago
I suspect there was an element of access and liquidity, especially for small amounts. It was a lot easier back then to go to your local bank to ask your teller to put money into your savings account than buy bonds, stocks, etc. Nowadays with e-trade and the like, it's as easy to use much more sophisticated investment mechanisms than back then.
- jonknee 10y ago
  That has zero to do with it. Interest rates around the globe are much lower than they were in the past (to the point of trillions in negative interest bonds where if you hold to term you're guaranteed to not get back your investment!). There is currently too much cash in the world without good places to put it, hence plunging yields. The short version: your bank doesn't pay much interest because they have no great higher yielding places to put your deposits to work. http://www.cnbc.com/2016/06/29/there-are-now-117-trillion-dollars-worth-of-bonds-with-negative-yields.html http://www.cnbc.com/2016/06/29/there-are-now-117-trillion-do...
ceejayoz 10y ago
The interest rate on savings accounts is pretty well synced up to inflation and the interest rates banks pay to the Fed. Banks weren't giving 5% interest out of the goodness of their hearts. They were giving 5% interest because they could leverage that deposited money to make more than 5% elsewhere. Today, they can get essentially interest-free money straight from the Fed, so there's no point in paying much interest.
jonknee 10y ago
Ask about his mortgage rate at the time though... Interest rates are a double edged sword.
- shostack 10y ago
  Honestly I'd much rather have had a high rate back then as it meant home prices were lower. Now that rates have plummeted that could be refinanced into what might be quite a decent amount of savings.
  - jonknee 10y ago
    Hindsight is always 20/20, but it wasn't an obvious slam dunk to buy a home with an 18% loan. That's like paying for your house on a credit card. It was even more unaffordable then as it is now (on average, obviously individual markets vary--SF is more $$$ and Detroit way cheaper). http://finance.yahoo.com/blogs/just-explain-it/why-mortgage-rates-matter-152241574.html http://finance.yahoo.com/blogs/just-explain-it/why-mortgage-... > Affordability dropped to an all-time low as rates climbed to record levels. Simply put, mortgage rates priced most Americans out of the market, and it took years for home sales to rebound.

JoshTriplett 10y ago

Even a decade ago, "high-yield savings accounts" were a thing, earning 5% interest. But that occurred during a time when the federal funds rates were quite high as well, and inflation had a comparable rate, making the interest rate illusionary. In practice, savings accounts are never likely to significantly outpace inflation.

ghaff 10y ago

Well, and for fairly long stretches of time over the past fifty years or so, money that you stuck under the mattress or otherwise in non-interest bearing accounts was taking a fairly substantial hit in value every year due to inflation. Currently, the return on just about any near-zero risk investment (CDs, Treasuries, bank savings accounts) is so near zero return that it's probably not even worth dealing with for any modest sum of money.

herge 10y ago

I suspect there was an element of access and liquidity, especially for small amounts. It was a lot easier back then to go to your local bank to ask your teller to put money into your savings account than buy bonds, stocks, etc. Nowadays with e-trade and the like, it's as easy to use much more sophisticated investment mechanisms than back then.

jonknee 10y ago
That has zero to do with it. Interest rates around the globe are much lower than they were in the past (to the point of trillions in negative interest bonds where if you hold to term you're guaranteed to not get back your investment!). There is currently too much cash in the world without good places to put it, hence plunging yields. The short version: your bank doesn't pay much interest because they have no great higher yielding places to put your deposits to work. http://www.cnbc.com/2016/06/29/there-are-now-117-trillion-dollars-worth-of-bonds-with-negative-yields.html http://www.cnbc.com/2016/06/29/there-are-now-117-trillion-do...

ceejayoz 10y ago

The interest rate on savings accounts is pretty well synced up to inflation and the interest rates banks pay to the Fed. Banks weren't giving 5% interest out of the goodness of their hearts. They were giving 5% interest because they could leverage that deposited money to make more than 5% elsewhere. Today, they can get essentially interest-free money straight from the Fed, so there's no point in paying much interest.

jonknee 10y ago

Ask about his mortgage rate at the time though... Interest rates are a double edged sword.

shostack 10y ago
Honestly I'd much rather have had a high rate back then as it meant home prices were lower. Now that rates have plummeted that could be refinanced into what might be quite a decent amount of savings.
- jonknee 10y ago
  Hindsight is always 20/20, but it wasn't an obvious slam dunk to buy a home with an 18% loan. That's like paying for your house on a credit card. It was even more unaffordable then as it is now (on average, obviously individual markets vary--SF is more $$$ and Detroit way cheaper). http://finance.yahoo.com/blogs/just-explain-it/why-mortgage-rates-matter-152241574.html http://finance.yahoo.com/blogs/just-explain-it/why-mortgage-... > Affordability dropped to an all-time low as rates climbed to record levels. Simply put, mortgage rates priced most Americans out of the market, and it took years for home sales to rebound.