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Agreed. It is crazy that for a standard "Savings" account: - interest earned is less than inflation. - I pay tax on that interest earned. "Saving" money in a

Agreed. It is crazy that for a standard "Savings" account: - interest earned is less than inflation. - I pay tax on that interest earned. "Saving" money in a common savings bank account pisses away value. Many people are not capable of more financial management capability. The middle class is often locked into a mortgage - I am too! - and is barely one step up. But it is one step up. Ultimately, poor people don't own things that make money. They are not "rent seekers". They don't own stocks or real estate or anything else where the simple act of ownership makes money.

ip26 6y ago
I'm not a finance guy but I suspect it's axiomatic that you can't keep up with inflation without taking any risk. Like a law of economics.
- CarbyAu 6y ago
  I will admit I have little financial management knowledge myself. I am inclined to agree with you, but what is the bank doing with the money you keep there? Isn't the bank meant to be using your money in a "managed fund" like manner? IE leverage it to make profits. Here in Australia the banks make quite decent profits, and yet a savings account can't break even, before tax?!? I haven't done the sums but I am curious if it is better to own shares in the bank than put money in the bank. I am also inclined to ensure my son does get financial knowledge. It is hard to play a game you know only limited rules of.
  - econcon 6y ago
    Bank also makes money on transaction fees (both merchant and account holder side) which is something bank account owners don't make.
- schrodinger 6y ago
  Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time. Although I guess you can argue that "tying up" the money is a form a risk, and almost certainly a luxury some poor people cannot afford.
  - econcon 6y ago
    >Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time It's not risk free, there is nothing that stops government from creating inflation so they can pay off the debt for in inflated dollars. Today, central bank alone doesn't have power to make create money out of thin air. Government guaranteeing loans from banks to corporate players and projects is creating inflation. It's good for politicians as they can pay off their expensive mistakes in cheap money.
    - schrodinger 6y ago
      Treasury bills are considered "risk-free", although pedantically of course nothing is actually free of risk. https://www.investopedia.com/terms/r/risk-freereturn.asp https://www.investopedia.com/terms/r/risk-freereturn.asp
  - jl2718 6y ago
    A bond has a NPV like any other instrument. The purchase cost of a TIPS can be any price, including above coupon. TIPS are especially sensitive to interest rate risk because higher interest rates drop both the underlying asset value, and the inflation index. So it’s basically just a double-leverage T-note.
Anon1096 6y ago
Why should the interest rate on a savings account match inflation at all? I don't see the correlation. With FED rates so low, it isn't even evident that they should produce positive return, and I wouldn't be surprised to one day see negative return savings accounts.
- CarbyAu 6y ago
  While I have a vague intuition from an economic point of view you are correct,(I am not a finance guy) I take issue with the name of the product. Savings. Generally advertised as helping your money grow. It isn't advertised as a "Slow draining of value" account.
dublinben 6y ago
>interest earned is less than inflation. - I pay tax on that interest earned. Interestingly, the current administration proposed to index capital gains taxes to inflation to address that very paradox. Unsurprisingly, their proposal would have just been a giveaway to the wealthy.[0] [0] https://itep.org/why-trump-administrations-plan-to-index-capital-gains-to-inflation-is-just-another-giveaway-to-the-wealthy/ https://itep.org/why-trump-administrations-plan-to-index-cap...
- tim333 6y ago
  We used to have capital gains indexed in the UK. I've never seen an inflation allowance for interest though. I guess it would be too expensive?
  - JAlexoid 6y ago
    It's factually easier to say - if your earned interest is less than X(absolute value), then you don't even have to report it. US tax system is MUCH more complicated, than UK's... and UK's system is fairly complex.

ip26 6y ago

I'm not a finance guy but I suspect it's axiomatic that you can't keep up with inflation without taking any risk. Like a law of economics.

CarbyAu 6y ago
I will admit I have little financial management knowledge myself. I am inclined to agree with you, but what is the bank doing with the money you keep there? Isn't the bank meant to be using your money in a "managed fund" like manner? IE leverage it to make profits. Here in Australia the banks make quite decent profits, and yet a savings account can't break even, before tax?!? I haven't done the sums but I am curious if it is better to own shares in the bank than put money in the bank. I am also inclined to ensure my son does get financial knowledge. It is hard to play a game you know only limited rules of.
- econcon 6y ago
  Bank also makes money on transaction fees (both merchant and account holder side) which is something bank account owners don't make.
schrodinger 6y ago
Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time. Although I guess you can argue that "tying up" the money is a form a risk, and almost certainly a luxury some poor people cannot afford.
- econcon 6y ago
  >Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time It's not risk free, there is nothing that stops government from creating inflation so they can pay off the debt for in inflated dollars. Today, central bank alone doesn't have power to make create money out of thin air. Government guaranteeing loans from banks to corporate players and projects is creating inflation. It's good for politicians as they can pay off their expensive mistakes in cheap money.
  - schrodinger 6y ago
    Treasury bills are considered "risk-free", although pedantically of course nothing is actually free of risk. https://www.investopedia.com/terms/r/risk-freereturn.asp https://www.investopedia.com/terms/r/risk-freereturn.asp
- jl2718 6y ago
  A bond has a NPV like any other instrument. The purchase cost of a TIPS can be any price, including above coupon. TIPS are especially sensitive to interest rate risk because higher interest rates drop both the underlying asset value, and the inflation index. So it’s basically just a double-leverage T-note.

Anon1096 6y ago

Why should the interest rate on a savings account match inflation at all? I don't see the correlation. With FED rates so low, it isn't even evident that they should produce positive return, and I wouldn't be surprised to one day see negative return savings accounts.

CarbyAu 6y ago
While I have a vague intuition from an economic point of view you are correct,(I am not a finance guy) I take issue with the name of the product. Savings. Generally advertised as helping your money grow. It isn't advertised as a "Slow draining of value" account.

dublinben 6y ago

>interest earned is less than inflation. - I pay tax on that interest earned. Interestingly, the current administration proposed to index capital gains taxes to inflation to address that very paradox. Unsurprisingly, their proposal would have just been a giveaway to the wealthy.[0] [0] https://itep.org/why-trump-administrations-plan-to-index-capital-gains-to-inflation-is-just-another-giveaway-to-the-wealthy/ https://itep.org/why-trump-administrations-plan-to-index-cap...

tim333 6y ago
We used to have capital gains indexed in the UK. I've never seen an inflation allowance for interest though. I guess it would be too expensive?
- JAlexoid 6y ago
  It's factually easier to say - if your earned interest is less than X(absolute value), then you don't even have to report it. US tax system is MUCH more complicated, than UK's... and UK's system is fairly complex.