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In a competitive market, if the Fed is paying out 1.95% to bank reserves, there is no reason why my savings account shouldn't pay me that figure minus a spread
by dannyw 8y ago
In a competitive market, if the Fed is paying out 1.95% to bank reserves, there is no reason why my savings account shouldn't pay me that figure minus a spread for expenses and a profit spread.
- ChristianBundy 8y agoI think that's what's happening, but the "profit spread" expands to fill any additional margin. It's not a competitive market and I see no reason to believe it ever will be.
- abenedic 8y agoThat is a point not oft appreciated. There is a price at which your bank can maximally use your funds. The should use them at that rate. So what is the rate, and what is the bank that allows that?
- shoo 8y agoi believe there is another proposal suggesting every individual should be able to deposit funds with the fed
- jayalpha 8y agoThis was possible in Germany. At one point this service was closed. I think I still have an account there with the Fed (with 50 Euros or something in it).
- rasz 8y agoDo you mean KdF beetle stamps? that particular investment didnt end well.
- wallace_f 8y agoImagine some dystopian future where you walk over homeless people on your way to work, hear about people without access to healthcare, and affordable housing crisis across the country... Meanwhile the government spends 5.6 trillion on in-perpetuity wars on people living in tents, or 4 trillion in helicopter'd money for Wall St; and somehow the people who are working constantly--who actually create the foundation of our economy to fund these wars and plutocrats--hardly ever complain about it because their limited free time to consume the news is overloaded with partisan politics, the latest Trump gaffe, etc? Way to be good serfs. No way you look at it, the Fed is not managed as an altruistic institution. At the very least, a very long time ago it should have been handed over to algorithmic monetary policy... but primarily just serving the role as a lender of last resort.
- tobylane 8y ago>As a regulator and central bank, the Bank of England has not offered consumer banking services for many years Wikipedia says this, but not why.
- YawningAngel 8y agoBecause it's a pain to do and not in their remit, essentially. They still offer business banking services. My employer, Monzo, has a business account with them.
- pas 8y agoIt would place the central bank into an even more biased role. And offering one retail service is very costly, especially when there's no way to amortize that cost over many services.
- tyre 8y agoMatt Levine at Bloomberg had a great writeup on this recently. (His “Money stuff” newsletter is fantastic.) Basically: if you were to start from scratch today and build a banking system, you probably wouldn’t build exactly the one we have. On the other hand, given that we do have this one, it may be worse to pull the rug out from existing banks by providing a Fed alternative.
- pankajdoharey 8y agoWell nothing stops you from investing abroad, For instance Investing in Indian Bank as a depositor will get you a guaranteed 6-7% return per annum depending on the bank. Long term deposits have even higher return rates, some smaller private banks even give as high as 8-9% on deposits.
- sumedh 8y ago> Well nothing stops you from investing abroad Currency fluctuations.
- megablast 8y agoThat is not stopping you at all.
- seansmccullough 8y agoWell technically it's not but realistically it is.
- A2017U1 8y agoHedging against currency movements is fairly trivial and doesn't cost much, I've gone down this route in Vietnam after getting annoyed at being forced into investments by low interest rates ( putting savings in most western banks is going backwards). 1 year deposit pays over 7%, the currency moved in my favor but still happy taking out the hedge. Getting a far better return than the riskier corporate bonds I hold locally.
- kgwgk 8y ago> Hedging against currency movements is fairly trivial and doesn't cost much The cost is essentially the (risk-free) interest rate differential that you were trying to capture in the first place.
- madars 8y ago
- User23 8y agoUp until recently the Fed didn't pay any interest on reserves (IOR). It was actually extremely controversial when they introduced it, but with quantitative easing it was operationally necessary in order to continue to set the Fed Funds Rate. Generally speaking Fed accounts are like checking accounts. The Fed doesn't issue CDs, they let the Treasury handle that.
- pbhjpbhj 8y agoCan you explain the uprising necessitya little more or provide a reference. Seems strange to pay banks to do nothing, surely that reduces their incentive to provide capital.
- ttul 8y agoThe Fed started paying interest on bank deposits as a way of pushing liquidity into the market when the banks themselves were unwilling to do enough lending to restart the economy. With the deposit rate at 1.95%, a bank has to decide whether they can earn more lending to clients than just parking the cash at the Fed. Obviously at 1.95% there is still an incentive to engage in lending, otherwise the fed would drop the deposit rate to encourage that behavior.
- adrr 8y agoYour bank is paying you that, but it has branches and other expenses(ATMs). If you want a better return on your money, get an online bank. Marcus pays 1.9%. Ally pays 1.85%.
- tonyztan 8y agoThere are banks & credit unions that pay interest close to the fed funds rate. Unfortunately just not the mainstream consumer banks. Some examples: Goldman Sachs (1.90%): https://www.marcus.com/us/en/savings/high-yield-savings https://www.marcus.com/us/en/savings/high-yield-savings Ally Bank (1.85%): https://www.ally.com/bank/view-rates/ https://www.ally.com/bank/view-rates/ Alliant Credit Union (1.80%): https://www.alliantcreditunion.org/rates https://www.alliantcreditunion.org/rates
- denormalfloat 8y agoBuying Money Market funds also have similar yields and are frequently backed by treasury bonds. Vanguard's MM fund currently has a yield of 1.96.
- emkemp 8y agoPlus you get a tax benefit by buying Treasuries.
- toomuchtodo 8y agoMoney market funds aren’t FDIC insured.
- jcranmer 8y agoIn the crash of 2008, they were temporarily insured. It's not unreasonable to expect they will similarly be insured in any major financial crash.
- toomuchtodo 8y agoI can't trust my emergency fund to the whims of backroom deals between central bankers, Wall Street, and whatever administration is in power when the economy is grinding to a halt, most especially for almost no additional benefit (comparing interest rates, the spread is only single digit basis points) over an FDIC insured account. I can see your point, but I really want to stress for others out there reading this thread that it isn't responsible to hope for insurance that doesn't exist when you need it the most.
- anoncoward111 8y agoMy bank pays 2% if you swipe your card 10 times and have a direct deposit coming into the account :)
- forbiddenlake 8y agoBy using a debit card like this, you give up the benefits (and protections) of a credit card. You can get a credit card that gives 2% back on everything, or more in specific categories. Which way does the math work out better for you? Capital One 360 is competitive with other mentioned banks; currently 1.85% for > $10k.
- RightMillennial 8y agoThe benefit of the bank account is that you get interest on what you have saved. You only get cash back from a credit card on what you've spent.
- anoncoward111 8y agoThanks for this info :) I swipe my card at 7/11 for a piece of gum 10 times per mont hahaa. I trust 7/11s infosec I guess, and I use my credit card for everything else. I don't want to reveal my bank account balance but the interest generated per month pays my phone bill :)
- astura 8y agoHigh interest savings accounts are currently paying over 2% https://www.doctorofcredit.com/high-interest-savings-to-get/ https://www.doctorofcredit.com/high-interest-savings-to-get/