Assuming we start paying banks to hold our money (in the US)

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vanquish
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Assuming we start paying banks to hold our money (in the US)

Post by vanquish » Thu May 21, 2020 1:56 pm

For the first time EVER…Interest rates just began to go NEGATIVE.
There are quite a few countries that ALREADY have negative interest Rates: Switzerland is negative 0.75%, Denmark is negative 0.6%, Japan is negative 0.1%. This means you have to pay banks to store your cash for you.

Let's assume that this started happening in the US, What would you do with your Money? Stocks, precious metals , bonds?
What would be your game plan or do you think this will never, ever happen here in US

MakingBacon
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Re: Assuming we start paying banks to hold our money (in the US)

Post by MakingBacon » Thu May 21, 2020 1:58 pm

I can't imagaine that ever actually happening.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by retired@50 » Thu May 21, 2020 2:02 pm

I suspect if it does happen, that people will just store their cash at home, or it will drive them into riskier bonds that still pay interest.

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Island John
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Island John » Thu May 21, 2020 2:08 pm

Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by EnjoyIt » Thu May 21, 2020 2:10 pm

retired@50 wrote:
Thu May 21, 2020 2:02 pm
I suspect if it does happen, that people will just store their cash at home, or it will drive them into riskier bonds that still pay interest.

Regards,
Or they will start paying off debt which will decrease the money supply further leading to even more deflation.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by 7eight9 » Thu May 21, 2020 2:10 pm

Negative interest rates are being imposed primarily on those with significant balances.

Negative interest rates have been here for a while in some regions. Despite this, banks have been reluctant to charge savers these negative rates to encourage further deposits. It appears this trend is coming to an end however. Deutsche Bank, which is one of the largest banks in the world, has finally made a proactive salvation for itself by commencing custody fees for all new accounts depositing more than €100,000 effective May 18, 2020.
https://thedeepdive.ca/deutsche-bank-to ... f-e100000/

Retail customers who would hit these limits could split up their accounts among multiple banks, hold funds in cash or invest in something else if they wished to avoid paying.
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Re: Assuming we start paying banks to hold our money (in the US)

Post by livesoft » Thu May 21, 2020 2:11 pm

My impression is that only LARGE accounts held by institutions get the negative interest rates while smaller retail accounts don't get negative interest rates. That is, I don't think that I will get negative interest rates, but I kinda hope so because then my bond funds should do rather well, shouldn't they?
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anon_investor
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Re: Assuming we start paying banks to hold our money (in the US)

Post by anon_investor » Thu May 21, 2020 2:19 pm

Brick and mortar banks in the U.S. already charge a bunch of crappy fees or make you jump through a lot of hoops to avoid fees on checking accounts. I assume they will just do the same for savings accounts once interest rates become negative; I mean brick and mortar banks have been charging crappy savings account rates since forever...

My bigger concern would be bond yields...

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Clever_Username » Thu May 21, 2020 2:25 pm

More and more, the 0% floor on Series I Bonds is looking like yet another advantage.
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Re: Assuming we start paying banks to hold our money (in the US)

Post by anon_investor » Thu May 21, 2020 2:29 pm

Clever_Username wrote:
Thu May 21, 2020 2:25 pm
More and more, the 0% floor on Series I Bonds is looking like yet another advantage.
Definitely. Glad I maxed out earlier this year when the fixed interest for I Bonds was 0.2%. And don't forget EE bonds.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Phineas J. Whoopee » Thu May 21, 2020 2:29 pm

There is Fed-determined interest on excess reserves, and there are consumer savings accounts.

I have long opined the latter will not have explicitly negative rates, probably stopping at 0.1%, followed by monthly fees, enough to bring in to the bank the revenue that an explicit negative interest rate would bring.

It's happening already.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by oldfort » Thu May 21, 2020 2:31 pm

When real rates are negative, stocks look more attractive relative to bonds. When nominal rates are negative, I don't see storing cash at home as a good solution. Cash stored at home is vulnerable to robbery and fire/flood/hurricane/tornado/earthquake/natural disasters.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by DaftInvestor » Thu May 21, 2020 3:18 pm

I don't believe it will happen. If it does - perhaps its the brick-and-mortar and large banks that charge the negative rates but the High-Yield On-line accounts (Marcus, Synchrony, Barclays) hold at or above zero.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Ferdinand2014 » Thu May 21, 2020 3:21 pm

vanquish wrote:
Thu May 21, 2020 1:56 pm
For the first time EVER…Interest rates just began to go NEGATIVE.
There are quite a few countries that ALREADY have negative interest Rates: Switzerland is negative 0.75%, Denmark is negative 0.6%, Japan is negative 0.1%. This means you have to pay banks to store your cash for you.

Let's assume that this started happening in the US, What would you do with your Money? Stocks, precious metals , bonds?
What would be your game plan or do you think this will never, ever happen here in US
Its already happening on an inflationary basis. You just don't see it. I would continue to buy the S&P 500 index, every week, like I do now.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Assuming we start paying banks to hold our money (in the US)

Post by mega317 » Thu May 21, 2020 3:29 pm

Yes to the above comment on monthly fees. Most people will pay monthly fees if the only other options are cash at home or buying something with a different risk profile.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Dominic » Thu May 21, 2020 3:40 pm

To my knowledge, most everyday people aren't paying negative interest rates in those countries. Government bonds are negative, and banks might charge large accounts, but unless you have a massive cash stockpile, you probably won't lose nominal dollars in your checking and savings accounts.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by arcticpineapplecorp. » Thu May 21, 2020 3:42 pm

livesoft wrote:
Thu May 21, 2020 2:11 pm
My impression is that only LARGE accounts held by institutions get the negative interest rates while smaller retail accounts don't get negative interest rates. That is, I don't think that I will get negative interest rates, but I kinda hope so because then my bond funds should do rather well, shouldn't they?
In Denmark, you could get a 10 year mortgage "where the charge is negative 0.5% per year." 20 year mortgages will be 0% and 30 year mortgages 0.5%.
https://www.theguardian.com/money/2019/ ... e-mortgage
https://www.cnbc.com/2019/08/12/danish- ... rates.html
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Clever_Username » Thu May 21, 2020 3:45 pm

arcticpineapplecorp. wrote:
Thu May 21, 2020 3:42 pm
livesoft wrote:
Thu May 21, 2020 2:11 pm
My impression is that only LARGE accounts held by institutions get the negative interest rates while smaller retail accounts don't get negative interest rates. That is, I don't think that I will get negative interest rates, but I kinda hope so because then my bond funds should do rather well, shouldn't they?
In Denmark, you could get a 10 year mortgage "where the charge is negative 0.5% per year." 20 year mortgages will be 0% and 30 year mortgages 0.5%.
https://www.theguardian.com/money/2019/ ... e-mortgage
https://www.cnbc.com/2019/08/12/danish- ... rates.html
Look at me, foolishly paying 3.25% over here.
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Noobvestor » Thu May 21, 2020 5:38 pm

Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.

Note that the real return does not even play a role in this decision - it's about relative returns of different available options.

Now let's carry this to the extreme: inflation is -20% and MM pays -19% - the real-return spread is the same as your example, but you have to pay 19%/year for the MM to hold your money (sure, it still has positive real yield, but so what?). I'd be burying cash at that stage - wouldn't you?

At some point - and I haven't thought about it enough to decide where that point is for me, let alone do I know where that point is for anyone/everyone else - it becomes silly to pick a negative yield over a flat cash yield. Will we hit that point? I don't know.
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Re: Assuming we start paying banks to hold our money (in the US)

Post by oldfort » Thu May 21, 2020 6:38 pm

Noobvestor wrote:
Thu May 21, 2020 5:38 pm
Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.
People will spend 1-2% a year to insure jewelry. 0.5% a year is cheap insurance for the risks of robbery, fire, and natural disasters.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by H-Town » Thu May 21, 2020 6:45 pm

vanquish wrote:
Thu May 21, 2020 1:56 pm
For the first time EVER…Interest rates just began to go NEGATIVE.
There are quite a few countries that ALREADY have negative interest Rates: Switzerland is negative 0.75%, Denmark is negative 0.6%, Japan is negative 0.1%. This means you have to pay banks to store your cash for you.

Let's assume that this started happening in the US, What would you do with your Money? Stocks, precious metals , bonds?
What would be your game plan or do you think this will never, ever happen here in US
What happened? Did cash get Covid-19 and suddenly no one wants to hold it?

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Re: Assuming we start paying banks to hold our money (in the US)

Post by abuss368 » Thu May 21, 2020 7:30 pm

vanquish wrote:
Thu May 21, 2020 1:56 pm
For the first time EVER…Interest rates just began to go NEGATIVE.
There are quite a few countries that ALREADY have negative interest Rates: Switzerland is negative 0.75%, Denmark is negative 0.6%, Japan is negative 0.1%. This means you have to pay banks to store your cash for you.

Let's assume that this started happening in the US, What would you do with your Money? Stocks, precious metals , bonds?
What would be your game plan or do you think this will never, ever happen here in US
I think you will see bank fees here before negative interest rates. I use a money market right now - still not much better. I will keep buying Total Stock every week!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Assuming we start paying banks to hold our money (in the US)

Post by AlohaJoe » Thu May 21, 2020 8:34 pm

vanquish wrote:
Thu May 21, 2020 1:56 pm
This means you have to pay banks to store your cash for you.
Up until, I dunno 2000 or so?, basically every bank in America charged you money just to "store your cash for you". Then came a big wave of "free checking if you direct deposit your paycheck" and most Bogleheads don't think about it anymore. Except almost every bank still charges monthly fees if you don't deposit a certain amount or have a certain balance or something.

Anyway, my point is simply that having to pay a bank isn't some amazing situation that has never happened in US history. It was the default until just a few years ago. And people still used banks.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by HEDGEFUNDIE » Thu May 21, 2020 8:52 pm

Noobvestor wrote:
Thu May 21, 2020 5:38 pm
Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.

Note that the real return does not even play a role in this decision - it's about relative returns of different available options.

Now let's carry this to the extreme: inflation is -20% and MM pays -19% - the real-return spread is the same as your example, but you have to pay 19%/year for the MM to hold your money (sure, it still has positive real yield, but so what?). I'd be burying cash at that stage - wouldn't you?

At some point - and I haven't thought about it enough to decide where that point is for me, let alone do I know where that point is for anyone/everyone else - it becomes silly to pick a negative yield over a flat cash yield. Will we hit that point? I don't know.
You are assuming that paper money will still be legal tender when / if interest rates hit -20%.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by whodidntante » Thu May 21, 2020 9:06 pm

Y'all have been getting hosed by low rates for years. Get some bank bonuses; it's the new interest.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by JoMoney » Thu May 21, 2020 9:13 pm

I don't believe it will happen.
I also don't believe there will really ever be a net negative mortgage, I've heard of a few cases where it was a thing in some European country, but when digging deeper there are ongoing administration fees, and a process kind of like 'mortgage points' except instead of pre-paying the borrower effectively agrees to pay down a larger mortgage balance than what the property actually sold for.

... but if it ever does become a thing, I'll be getting a big fat mortgage ASAP :)
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Noobvestor » Thu May 21, 2020 9:22 pm

HEDGEFUNDIE wrote:
Thu May 21, 2020 8:52 pm
You are assuming that paper money will still be legal tender when / if interest rates hit -20%.
I mean ... yes, I'm assuming we still have a currency-based financial system. Are you ... expecting that to change? :shock:

If you really think the world is ending, might want to consider shelter and provisions over stocks or bonds.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Noobvestor
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Noobvestor » Thu May 21, 2020 9:29 pm

oldfort wrote:
Thu May 21, 2020 6:38 pm
Noobvestor wrote:
Thu May 21, 2020 5:38 pm
Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.
People will spend 1-2% a year to insure jewelry. 0.5% a year is cheap insurance for the risks of robbery, fire, and natural disasters.
You may well be right about -.5%. That's not the point I was trying to make, though. I'm just pointing out that there's another option on the table when nominal rates go negative - one that goes from making very little sense to making increasingly more sense at sub-zero yields. It might well be that people will pay 2%/year nominal to insure their cash, but at some point many would start to put more in safes, etc.... My parents have this ancient safe just for documents - it weighs a proverbial ton, is fireproof, etc.... I never gave it much thought until now. I'm guessing it cost them the a few hundred dollars in today's money. At some point that becomes a cheaper option. -2%? -3%? -5%? To each their own ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Assuming we start paying banks to hold our money (in the US)

Post by HEDGEFUNDIE » Thu May 21, 2020 9:32 pm

:dollar
Noobvestor wrote:
Thu May 21, 2020 9:22 pm
HEDGEFUNDIE wrote:
Thu May 21, 2020 8:52 pm
You are assuming that paper money will still be legal tender when / if interest rates hit -20%.
I mean ... yes, I'm assuming we still have a currency-based financial system. Are you ... expecting that to change? :shock:

If you really think the world is ending, might want to consider shelter and provisions over stocks or bonds.
You can have currency without paper money. Ever heard of a credit card?

Paper money is a social construct. It can be created and also destroyed. Just look at what India did overnight.

https://en.m.wikipedia.org/wiki/2016_In ... netisation

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Dead Man Walking » Thu May 21, 2020 9:37 pm

I can’t find the thread, but a European Boglehead posted that banks pay a ridiculously low rate on consumer accounts. As I recall, it was .01% - which isn’t much different than rates at major US banks. Depositors are still losing money due to inflation, but not paying to hold money.

DMW

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Noobvestor » Thu May 21, 2020 9:47 pm

HEDGEFUNDIE wrote:
Thu May 21, 2020 9:32 pm
:dollar
Noobvestor wrote:
Thu May 21, 2020 9:22 pm
HEDGEFUNDIE wrote:
Thu May 21, 2020 8:52 pm
You are assuming that paper money will still be legal tender when / if interest rates hit -20%.
I mean ... yes, I'm assuming we still have a currency-based financial system. Are you ... expecting that to change? :shock:

If you really think the world is ending, might want to consider shelter and provisions over stocks or bonds.
You can have currency without paper money. Ever heard of a credit card?

Paper money is a social construct. It can be created and also destroyed. Just look at what India did overnight.

https://en.m.wikipedia.org/wiki/2016_In ... netisation
Again, if you see that as a real risk worth hedging, I would highly suggest a more diversified portfolio than just stocks and bonds. If "government voids cash" is on your risk list bingo card, I don't know how much you'll be able to trust the government's promises regarding interest payments.

If I held that to be a serious risk, I don't even know what I'd do. I suppose some mix of gold, real estate, and a well-stocked bunker. :|

As for India: your sensationalist presentation aside, they didn't discontinue paper currency, just forced some notes to be exchanged. Big diff.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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Re: Assuming we start paying banks to hold our money (in the US)

Post by SteadyOne » Thu May 21, 2020 10:19 pm

vanquish wrote:
Thu May 21, 2020 1:56 pm
For the first time EVER…Interest rates just began to go NEGATIVE.
There are quite a few countries that ALREADY have negative interest Rates: Switzerland is negative 0.75%, Denmark is negative 0.6%, Japan is negative 0.1%. This means you have to pay banks to store your cash for you.

Let's assume that this started happening in the US, What would you do with your Money? Stocks, precious metals , bonds?
What would be your game plan or do you think this will never, ever happen here in US

It will make sense to pay the debts and mortgages. Also, in deflation prices supposed to go down. So, if rates are negative -.5% and CPI is -.5% then it’s a wash.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

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Re: Assuming we start paying banks to hold our money (in the US)

Post by oldfort » Thu May 21, 2020 10:20 pm

Noobvestor wrote:
Thu May 21, 2020 9:29 pm
You may well be right about -.5%. That's not the point I was trying to make, though. I'm just pointing out that there's another option on the table when nominal rates go negative - one that goes from making very little sense to making increasingly more sense at sub-zero yields. It might well be that people will pay 2%/year nominal to insure their cash, but at some point many would start to put more in safes, etc.... My parents have this ancient safe just for documents - it weighs a proverbial ton, is fireproof, etc.... I never gave it much thought until now. I'm guessing it cost them the a few hundred dollars in today's money. At some point that becomes a cheaper option. -2%? -3%? -5%? To each their own ...
A quality safe will likely cost $4k, to get something tl-30 rated. This means the front of the safe can stand up to modern power tools, such as a carbide hole saw or angle grinder with abrasive wheels, for 30 minutes. If someone puts a gun to your head and tells you to open the safe, I know I'm going to give them the combination.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by Noobvestor » Thu May 21, 2020 10:28 pm

oldfort wrote:
Thu May 21, 2020 10:20 pm
Noobvestor wrote:
Thu May 21, 2020 9:29 pm
You may well be right about -.5%. That's not the point I was trying to make, though. I'm just pointing out that there's another option on the table when nominal rates go negative - one that goes from making very little sense to making increasingly more sense at sub-zero yields. It might well be that people will pay 2%/year nominal to insure their cash, but at some point many would start to put more in safes, etc.... My parents have this ancient safe just for documents - it weighs a proverbial ton, is fireproof, etc.... I never gave it much thought until now. I'm guessing it cost them the a few hundred dollars in today's money. At some point that becomes a cheaper option. -2%? -3%? -5%? To each their own ...
A quality safe will likely cost $4k, to get something tl-30 rated. This means the front of the safe can stand up to modern power tools, such as a carbide hole saw or angle grinder with abrasive wheels, for 30 minutes. If someone puts a gun to your head and tells you to open the safe, I know I'm going to give them the combination.
Well, we can game this out, but at some point it's just speculation. Do I think rich people with lots of cash will feel like they're better off putting some in a safe when rates go negative? Yeah. Probably a lot of them have fortified mansions and paid security, too. Beats me. We're not there yet, and I doubt we'll get there, and it would be unprecedented to have -2% yields, but at some point, behavior would shift. How? When? IDK.

But for fun: I doubt what'll keep money in safe 'safe' is going to be what resists an angle grinder, but how people cleverly conceal or add layers of security, like timers or whatever they use in the movies to foil bank vault robbers (and I assume in real life, too, but no real idea). A big home safe for normal people in itself never seemed all that safe to me, ironically. Those effectively come with a big fat 'rob me please' sign on them.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

oldfort
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Re: Assuming we start paying banks to hold our money (in the US)

Post by oldfort » Thu May 21, 2020 10:54 pm

Noobvestor wrote:
Thu May 21, 2020 10:28 pm
But for fun: I doubt what'll keep money in safe 'safe' is going to be what resists an angle grinder, but how people cleverly conceal or add layers of security, like timers or whatever they use in the movies to foil bank vault robbers (and I assume in real life, too, but no real idea). A big home safe for normal people in itself never seemed all that safe to me, ironically. Those effectively come with a big fat 'rob me please' sign on them.
I imagine a lot of what keeps banks safe, during the day, is police making responding to a bank robbery in progress a top priority. If criminals think they have five minutes before the cops show up, this doesn't give them time to get into the vault.

EnjoyIt
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Re: Assuming we start paying banks to hold our money (in the US)

Post by EnjoyIt » Fri May 22, 2020 12:31 am

Noobvestor wrote:
Thu May 21, 2020 10:28 pm
oldfort wrote:
Thu May 21, 2020 10:20 pm
Noobvestor wrote:
Thu May 21, 2020 9:29 pm
You may well be right about -.5%. That's not the point I was trying to make, though. I'm just pointing out that there's another option on the table when nominal rates go negative - one that goes from making very little sense to making increasingly more sense at sub-zero yields. It might well be that people will pay 2%/year nominal to insure their cash, but at some point many would start to put more in safes, etc.... My parents have this ancient safe just for documents - it weighs a proverbial ton, is fireproof, etc.... I never gave it much thought until now. I'm guessing it cost them the a few hundred dollars in today's money. At some point that becomes a cheaper option. -2%? -3%? -5%? To each their own ...
A quality safe will likely cost $4k, to get something tl-30 rated. This means the front of the safe can stand up to modern power tools, such as a carbide hole saw or angle grinder with abrasive wheels, for 30 minutes. If someone puts a gun to your head and tells you to open the safe, I know I'm going to give them the combination.
Well, we can game this out, but at some point it's just speculation. Do I think rich people with lots of cash will feel like they're better off putting some in a safe when rates go negative? Yeah. Probably a lot of them have fortified mansions and paid security, too. Beats me. We're not there yet, and I doubt we'll get there, and it would be unprecedented to have -2% yields, but at some point, behavior would shift. How? When? IDK.

But for fun: I doubt what'll keep money in safe 'safe' is going to be what resists an angle grinder, but how people cleverly conceal or add layers of security, like timers or whatever they use in the movies to foil bank vault robbers (and I assume in real life, too, but no real idea). A big home safe for normal people in itself never seemed all that safe to me, ironically. Those effectively come with a big fat 'rob me please' sign on them.
Lots of people have safes and keep their guns and some other valuables in there. It’s very common particularly in the south.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by RetiredNewbie » Fri May 22, 2020 4:05 am

Noobvestor wrote:
Thu May 21, 2020 5:38 pm
I'd be burying cash at that stage - wouldn't you?
Nope. I'd stash it in my gun safe. ;-)

All this talk about burying cash makes me thankful I listened to the following advice before I bought my gun safe...

Figure out how much space you need, and multiply that by four. Because as soon as you get it in the house, you will realize that you can put all of your valuables in there. Gold, jewelry, important papers, family heirlooms, etc. And get one with a high fireproof rating.
Your attitude about risk changes significantly when the bear begins to maul you.

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Re: Assuming we start paying banks to hold our money (in the US)

Post by RetiredNewbie » Fri May 22, 2020 4:27 am

Noobvestor wrote:
Thu May 21, 2020 10:28 pm
A big home safe for normal people in itself never seemed all that safe to me, ironically. Those effectively come with a big fat 'rob me please' sign on them.
Depends on where you live, I guess. I live down South, and in my neighborhood we all have guns and dogs. My gun safe cost about $3500 now. The body weighs 400 pounds, and the door weighs 300. And it's bolted to the floor. Anyone grinding on a safe in my neighborhood for 30 minutes would soon be dog-bit and shot. And then we'd call the cops. And I never leave my house without my .45. I would say "God bless the South", but it's too late. He already has. I guess it would be possible, but in my 64 years on this Earth, I've never heard of anyone around here successfully breaking into a gun safe like mine.
Your attitude about risk changes significantly when the bear begins to maul you.

donfairplay
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Re: Assuming we start paying banks to hold our money (in the US)

Post by donfairplay » Fri May 22, 2020 4:41 am

If we get negative rate savings accounts, then we could get negative rate mortgages.

I'd be like Rich Uncle Pennybags (Monopoly) collecting the most houses and hotels like someone who rolls doubles twice while opponents hit the go directly to jail square.

motorcyclesarecool
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Re: Assuming we start paying banks to hold our money (in the US)

Post by motorcyclesarecool » Fri May 22, 2020 4:47 am

Since I’ve already weighed in on what to do in a NIRP environment, I’ll quote myself:
motorcyclesarecool wrote:
Wed Mar 04, 2020 5:02 am
Ideas for taxable money in a NIRP environment:
-overpay your taxes / get annual refund
-big bills in a safe deposit box
-pay all bills early
-overpay your credit card bills, get a check back every once in a while
-cash in a mattress
Other ideas since then:
-buy lots of gift cards to pay recurring expenses in advance (My guess is it will remain easy to continue buying gift cards below “par”)
-If you already have charitable intent, pre-fund a few years’ giving with a Donor-Advised Fund.
-Buy returnable cans & bottles at or near par from your local vagrants. Return them for the deposit.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Stef
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Stef » Fri May 22, 2020 6:13 am

As a Swiss some insight:

First banks increased the account fees. Then they started charging negative interest (0.5-1.0%) on big amounts of cash (>3 million). Now the limit is decreasing slowly, most of the Swiss Banks charge anything above 250k, but there are some that are already at 100k. I think it will keep going like that till every bank charges negative interest >50k.

People aren't really hiding their money at home. They just accept the whole thing because the transition was slow enough.

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Teriyaki
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Teriyaki » Fri May 22, 2020 6:41 am

Dead Man Walking wrote:
Thu May 21, 2020 9:37 pm
I can’t find the thread, but a European Boglehead posted that banks pay a ridiculously low rate on consumer accounts. As I recall, it was .01% - which isn’t much different than rates at major US banks. Depositors are still losing money due to inflation, but not paying to hold money.

DMW
Yep, my bank here in Finland is paying me nothing on my regular account. I have most of my cash in so-called high-yield internet-only accounts that yield 1% at most. That's not too bad though, as inflation has also been around 1% even before this corona thing hit.

Bank fees at brick and mortar banks have been going up slightly, but nothing too dramatic. I don't think we'll be having actual nominally negative interest rates for regular customers with small cash balances anytime soon. Could be done when we move away from paper money entirely, but that will surely take at least a few decades.

anakinskywalker
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Re: Assuming we start paying banks to hold our money (in the US)

Post by anakinskywalker » Fri May 22, 2020 9:41 am

oldfort wrote:
Thu May 21, 2020 6:38 pm
Noobvestor wrote:
Thu May 21, 2020 5:38 pm
Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.
People will spend 1-2% a year to insure jewelry. 0.5% a year is cheap insurance for the risks of robbery, fire, and natural disasters.
You're conflating two totally different things. Physical jewellery poses a significant risk of theft/loss/etc, so it makes sense to pay 1% to insure it.

Cash in a bank account has a much lower, almost negligible risk of loss (fraudulent transactions, bank hacks, etc do no come anywhere close to 1% of total bank deposits). So people would feel cheated if asked to pay 0.5% or anything like that. A flat fee for small dollar accounts to cover fixed expenses of the bank amortized per account (branches, ATMs, debit cards, online banking, etc) is fair, and such fees already exist as others have pointed out.

Comparing the jewellery situation to the fire/theft/etc risk of holding physical cash as a justification for a 0.5% bank deposit fee is meaningless, as the act of holding physical cash outside of a bank account materially increases the risk and is by no means the dominant strategy for the retail saver.

Anakin

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Re: Assuming we start paying banks to hold our money (in the US)

Post by saintsfan342000 » Fri May 22, 2020 9:50 am

The sad truth is that a lot of people have long paid banks to hold their money. The big 4 monster mega banks and many super-regionals all charge monthly fees for basic checking, and millions of people suffer it just because they think there's no other choice. I can't imagine the current no-fee banks out there now would actually start charging people to store cash in a checking or savings account.
Already impartial now

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vineviz
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Re: Assuming we start paying banks to hold our money (in the US)

Post by vineviz » Fri May 22, 2020 9:53 am

HEDGEFUNDIE wrote:
Thu May 21, 2020 9:32 pm
:dollar
Noobvestor wrote:
Thu May 21, 2020 9:22 pm
HEDGEFUNDIE wrote:
Thu May 21, 2020 8:52 pm
You are assuming that paper money will still be legal tender when / if interest rates hit -20%.
I mean ... yes, I'm assuming we still have a currency-based financial system. Are you ... expecting that to change? :shock:

If you really think the world is ending, might want to consider shelter and provisions over stocks or bonds.
You can have currency without paper money. Ever heard of a credit card?

Paper money is a social construct. It can be created and also destroyed. Just look at what India did overnight.

https://en.m.wikipedia.org/wiki/2016_In ... netisation
Can you imagine how much more damage our economy would have suffered over the past two months if a large percentage of our population kept all of their cash in paper bills in their homes?

Do Amazon, Netflix, and Grub Hub take paper money?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

oldfort
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Re: Assuming we start paying banks to hold our money (in the US)

Post by oldfort » Fri May 22, 2020 11:15 am

anakinskywalker wrote:
Fri May 22, 2020 9:41 am
oldfort wrote:
Thu May 21, 2020 6:38 pm
Noobvestor wrote:
Thu May 21, 2020 5:38 pm
Island John wrote:
Thu May 21, 2020 2:08 pm
Don’t you also have to consider the inflation rate? For example, if you have funds in a money market account that is paying 0.5%, and inflation is 1.5%, aren’t you already losing 1%? It seems like real rates are what’s important.
I've seen variations on this argument a lot, and I don't think it really works. Let's try a simple example based on your numbers:

A) Inflation is 1.5%, MM pays .5%. In this case, MM yields more than physical cash. Both have negative real yields, but that's irrelevant.

B) Now imagine inflation is .5%, MM pays -5%. Same difference, but now I have an incentive to hold cash, which pays more than the MM.

In the first case, holding physical cash returns less than the MM. In the second case, it returns more. Now whether I would go out of my way to take out cash and bury it in a box or pay for vault storage to eek out .5%/year more return is up for debate, but they become viable options.
People will spend 1-2% a year to insure jewelry. 0.5% a year is cheap insurance for the risks of robbery, fire, and natural disasters.
You're conflating two totally different things. Physical jewellery poses a significant risk of theft/loss/etc, so it makes sense to pay 1% to insure it.

Cash in a bank account has a much lower, almost negligible risk of loss (fraudulent transactions, bank hacks, etc do no come anywhere close to 1% of total bank deposits). So people would feel cheated if asked to pay 0.5% or anything like that. A flat fee for small dollar accounts to cover fixed expenses of the bank amortized per account (branches, ATMs, debit cards, online banking, etc) is fair, and such fees already exist as others have pointed out.

Comparing the jewellery situation to the fire/theft/etc risk of holding physical cash as a justification for a 0.5% bank deposit fee is meaningless, as the act of holding physical cash outside of a bank account materially increases the risk and is by no means the dominant strategy for the retail saver.

Anakin
Whether people feel cheated or not is irrelevant. If the binary choice is to hold physical cash or pay 0.75% to a bank to hold your
cash, I’m going with the bank.

handle
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Re: Assuming we start paying banks to hold our money (in the US)

Post by handle » Fri May 22, 2020 11:59 am

I hold most of my "cash" in I-bonds, which are not allowed to have negative interest rates.

For most people I'm expecting no change in either the size or allocation of cash reserves unless rates get significantly negative (how low is significant will vary with the person but I'd guess around -5% real return is where most people would crack). There are some places where home caches are commonplace and those people might start using them more, but for most the risk of robbery is going to be worth a few percent/year. All it takes is one person knowing you have a stash...

If rates do fall below that threshold, people will probably decrease the size of the reserves (spend it faster) rather than hoarding, again because robbery.

I also think an FDIC insurance-type law covering small accounts could be very likely depending on what fraction of banks' assets those balances represent (not sure where to find that data). Although negative returns on savings balances is nothing new, even those with no understanding of inflation will be upset by a negative interest rate.

German Expat
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Re: Assuming we start paying banks to hold our money (in the US)

Post by German Expat » Fri May 22, 2020 12:13 pm

A Swiss already reported what happened in reality here. We also live in Switzerland now and because of our US passports can't really invest locally. The bank we are with started first to add a 5 CHF per month fee (account was free before) then started to charge negative interest rates above 500k and now moved it down to 250k.
In the US you have a lot more options with high yield savings accounts (still paying above 1%) and you can spread out the money easier with free accounts. I still have 2 bank relationships in the US and 2 savings account and a couple brokerage accounts. All have no fees so it would be pretty easy to spread the money around.

If you look at it though from a companies perspective it is much harder. Especially in the current economy situation you want to have large cash balances as a safety net but this is made harder by negative interest rates. The Swiss National Bank did raise the limits in March before banks get charged negative interest to ease the burden on the banks.

Dependent how the situation develops I would not be surprised if the Fed also goes negative. But then the question for countries that are already negative (like Switzerland) how far you can really go. It looks like the -0.75% is the current lower boundary because the SNB did not lower the rates further while other central banks did.

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Phineas J. Whoopee
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Re: Assuming we start paying banks to hold our money (in the US)

Post by Phineas J. Whoopee » Fri May 22, 2020 6:39 pm

arcticpineapplecorp. wrote:
Thu May 21, 2020 3:42 pm
livesoft wrote:
Thu May 21, 2020 2:11 pm
My impression is that only LARGE accounts held by institutions get the negative interest rates while smaller retail accounts don't get negative interest rates. That is, I don't think that I will get negative interest rates, but I kinda hope so because then my bond funds should do rather well, shouldn't they?
In Denmark, you could get a 10 year mortgage "where the charge is negative 0.5% per year." 20 year mortgages will be 0% and 30 year mortgages 0.5%.
https://www.theguardian.com/money/2019/ ... e-mortgage
https://www.cnbc.com/2019/08/12/danish- ... rates.html
After paying many points at closing. Don't get fooled by headlines.

PJW

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arcticpineapplecorp.
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Re: Assuming we start paying banks to hold our money (in the US)

Post by arcticpineapplecorp. » Fri May 22, 2020 6:58 pm

Phineas J. Whoopee wrote:
Fri May 22, 2020 6:39 pm
arcticpineapplecorp. wrote:
Thu May 21, 2020 3:42 pm
livesoft wrote:
Thu May 21, 2020 2:11 pm
My impression is that only LARGE accounts held by institutions get the negative interest rates while smaller retail accounts don't get negative interest rates. That is, I don't think that I will get negative interest rates, but I kinda hope so because then my bond funds should do rather well, shouldn't they?
In Denmark, you could get a 10 year mortgage "where the charge is negative 0.5% per year." 20 year mortgages will be 0% and 30 year mortgages 0.5%.
https://www.theguardian.com/money/2019/ ... e-mortgage
https://www.cnbc.com/2019/08/12/danish- ... rates.html
After paying many points at closing. Don't get fooled by headlines.

PJW
i did read the articles. they don't talk about points specifically but do mention fees:
While a negative interest rate makes it sound like borrowers will be paid to take out a mortgage rather than pay the bank interest, the reality is more complicated. With banking fees, borrowers could still end up owing money on the loan, not earning it, Mikkel Høegh, a housing economist for Jyske Bank, says.

Plus, due to the short term of the loans offered by Jyske Bank, they aren’t meant to finance an entire home purchase. They are intended to be supplemental loans that can be used for home repairs and upgrades or to pay off debts with higher rates, the bank says.

source: https://www.cnbc.com/2019/08/12/danish- ... rates.html
In recognition of how puzzling the new mortgage is for customers, the bank’s FAQ is littered with questions and statements such as Hvordan kan det lade sig gøre? (How is that possible?) and Ja, du læste rigtigt (Yes, you read that right).

The mortgage is possible because Denmark, as well as Sweden and Switzerland, has seen rates in money markets drop to levels that turn banking upside-down.

Høegh said Jyske Bank is able to go into money markets and borrow from institutional investors at a negative rate, and is simply passing this on to its customers.

But the flipside is that savers will see nothing paid in interest on their deposits – and may also suffer as they go negative.

source: https://www.theguardian.com/money/2019/ ... e-mortgage
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