3 ms·

> As recently as 2006, savings accounts with zero risk for >80% of the US population paid 4-5% interest. I was gonna ask how was that "zero risk" possible, but

• cesarb 9y ago
  Domestic government bonds of stable countries are usually treated as "zero risk", even though they still have a small risk. A savings account with "zero risk" would be one that has as much risk as a "zero risk" bond, usually by both being backed by these bonds, and having a government-backed insurance scheme (if the bank fails, the account holders are still paid). (It might help if you think of risk as a scale, and the "zero" as an arbitrary point in that scale. It's useful to set the "zero" to "the lowest risk you can actually get", even though there might be something with an even lower risk.)
  • euyyn 9y ago
    So US bonds were yielding 4-5% back then?
• Spooky23 9y ago
  Not at all. The problems we found out later were with banks packaging loans into more complex securities of and selling them to third parties. You have "zero risk" with bank deposits because FDIC insures deposits up $250k (today, $100k previously) with the full faith and credit of the US Treasury.
  • euyyn 9y ago
    How does that insurance work, though: If the bank promises to pay its clients some obscene interest, and goes belly up, will FDIC pay that? Or is it "the US Treasury will pay you up to the amount you initially deposited"?