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Few people try to make a profit on cash holdings. They prefer safety, liquidity, and convenience. Is that 50-100 bps worth it to keep shifting all your accounts

Few people try to make a profit on cash holdings. They prefer safety, liquidity, and convenience. Is that 50-100 bps worth it to keep shifting all your accounts around? Perhaps you should just invest a little more into a different asset class and less into cash.

aidenn0 5y ago
Currently people are losing money (in real terms) on cash holdings; the spread between inflation and interest rates is what people are paying for the liquidity. So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me. 100bps would certainly be enough for me to move my savings around annually, given that ACH transfers are nearly free.
- thoughtstheseus 5y ago
  If it makes sense for you, do it. The average bank balance is ~$10k, so a 100 bp gain is $100 dollars. A 100 bps gain would triple the current yield for online savings accounts. I’m skeptical that would be enough motivation. Most people just want to pay their bills on time. They’re not building optimal financial portfolios.
- oarabbus_ 5y ago
  >given that ACH transfers are nearly free. Are they not completely free to the ACH end user? Unless you are referring to an indirect cost of the transfer time? I've never had to pay a fee for ACH.
  - aidenn0 5y ago
    Yes, with ACH it's possible for the money to be tied up for some time, which deprives you of interest.
- imtringued 5y ago
  >So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me. Welcome to a global economy with imbalanced trade. Export surpluses leave the exporting nation with too much foreign currency while simultaneously draining the industrial base of the importing country. If the exporting nation invests their money into the stock or housing market they are exposing themselves to a bubble, if they just hold onto the money they avoid the risk.
jrsj 5y ago
Yeah I’d rather hold assets for anything I don’t have a possibility of immediately needing. Even with more volatile assets like stocks, generally I can expect that it will be worth more at some point in the not too distant future than today, whereas cash is always worth less. As a result I intentionally have 0 cash savings. Enough to live on for 2-3 months in my checking account, plus I have available credit for emergencies, everything else goes into assets I can expect to appreciate in high single digits worst case. If anything I feel like most people have a much less aggressive allocation than they can probably afford to (although I also have little debt, just a car loan, and a relatively low cost of living which makes this easier)
- CheezeIt 5y ago
  Yes, with credit cards, there’s little reason to keep money in checking unless you have a low credit limit. I hold physical cash for real tail risk, and you can always deposit that if need be.
- tmn 5y ago
  Just as you expect your asset to be worth more at some point in the future, you can expect your cash to worth less at some point in the future. These follow from each other. To say the cash is always worth less is not coherent with your stated asset model.

aidenn0 5y ago

Currently people are losing money (in real terms) on cash holdings; the spread between inflation and interest rates is what people are paying for the liquidity. So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me. 100bps would certainly be enough for me to move my savings around annually, given that ACH transfers are nearly free.

thoughtstheseus 5y ago
If it makes sense for you, do it. The average bank balance is ~$10k, so a 100 bp gain is $100 dollars. A 100 bps gain would triple the current yield for online savings accounts. I’m skeptical that would be enough motivation. Most people just want to pay their bills on time. They’re not building optimal financial portfolios.
oarabbus_ 5y ago
>given that ACH transfers are nearly free. Are they not completely free to the ACH end user? Unless you are referring to an indirect cost of the transfer time? I've never had to pay a fee for ACH.
- aidenn0 5y ago
  Yes, with ACH it's possible for the money to be tied up for some time, which deprives you of interest.
imtringued 5y ago
>So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me. Welcome to a global economy with imbalanced trade. Export surpluses leave the exporting nation with too much foreign currency while simultaneously draining the industrial base of the importing country. If the exporting nation invests their money into the stock or housing market they are exposing themselves to a bubble, if they just hold onto the money they avoid the risk.

jrsj 5y ago

Yeah I’d rather hold assets for anything I don’t have a possibility of immediately needing. Even with more volatile assets like stocks, generally I can expect that it will be worth more at some point in the not too distant future than today, whereas cash is always worth less. As a result I intentionally have 0 cash savings. Enough to live on for 2-3 months in my checking account, plus I have available credit for emergencies, everything else goes into assets I can expect to appreciate in high single digits worst case. If anything I feel like most people have a much less aggressive allocation than they can probably afford to (although I also have little debt, just a car loan, and a relatively low cost of living which makes this easier)

CheezeIt 5y ago
Yes, with credit cards, there’s little reason to keep money in checking unless you have a low credit limit. I hold physical cash for real tail risk, and you can always deposit that if need be.
tmn 5y ago
Just as you expect your asset to be worth more at some point in the future, you can expect your cash to worth less at some point in the future. These follow from each other. To say the cash is always worth less is not coherent with your stated asset model.