NYT: Why Saving Account Rates are so Pathetic

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NYT: Why Saving Account Rates are so Pathetic

Post by catdude »

Hi Bogleheads --

The New York Times website has an article on why savings accounts are offering such low rates of return --

http://www.nytimes.com/2010/12/04/your- ... ml?_r=1&hp
Because of persistent low interest rates, anyone looking for decent returns that are also safe has had a tough time this year. Most of the best savings accounts, for instance, don’t even top a 1.5 percent annual yield.

. . . . [snip] . . . .

If this sounds like you and you’re increasingly frustrated, all of this poses a basic question: Isn’t there some institution, somewhere, that can pay just a little bit more? What is stopping that from happening?

There are at least seven things that are getting in the way.
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Post by bb »

that seemed like a really long winded way of saying supply vs demand
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Post by nisiprius »

I'm surprised he didn't mention Reward Checking accounts. It seems too good to last but so far it's worked just as advertised. Free checking, fee reimbursement of ATM fees up to $4.95/month--silly thing but what a great sense of freedom it is to just use the darn ripoff ATM machine in the convenience store when travelling, and 3.01% interest on balances up to $25,000 (0.5% above that).

Yes, you have to jump through a considerable number of hoops (electronic statements, 12 POS purchases per month on the ATM card, one ACH transfer in or out per month) and I plead guilty to reorganizing our financial life so that we could do it without abandoning our old bank.
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Post by simplesimon »

nisiprius wrote:I'm surprised he didn't mention Reward Checking accounts.
I believe he touched upon it in a couple lines on page 2.
You can eke out a bit more by moving money to smaller banks that offer the new breed of high-interest checking accounts that require you to use your debit card a lot and to sign for purchases. This may require giving up access to a branch, however, which some people are unwilling or unable to do.
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Post by tfb »

nisiprius wrote:I'm surprised he didn't mention Reward Checking accounts.
He did.

And to answer the question why banks don't pay more: competition. Depositors compete against themselves to the point a 1.5% account will attract all the money a bank wants. I won't pay more if I were running the bank. Supply and demand, exactly.
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Post by fishnskiguy »

And now the real answer. :)

It isn't that banks won't lend , folks. The real problem is nobody wants to borrow!

We, as a nation, got deeply in hock and as long as the music played it worked.

The music stopped in 2008. Folks learned debt was bad for the first time since 1929.

Case in point: the guy that landscaped my yard, a very honest and hardworking decent fellow, went from 33 employees to 4. The last thing in the world he wants is a loan.

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Post by mithrandir »

fishnskiguy wrote: It isn't that banks won't lend , folks. The real problem is nobody wants to borrow!
It's true. My current obsession is paying off my mortgage. I have the cash on-hand to make it happen but am trying to make sure I remain liquid.

After I pay off my mortgage I will have no debts. I considered that I might NEVER take out another loan of any kind again...fairly "bold" to say since I'm in my 30s. I am a crazy saver like many Bogleheads and could probably make future purchases (e.g. automotive) using cash alone.

If my mentality becomes prevalent it would shake the banking industry. With people talking about the "Great Reset" how we view debt may fundamentally change for a generation or more.

I want to own things outright even if it means only being able to buy something less expensive. Heck, that's the whole point! Financing makes us believe we can afford things that we probably can't.

Even though mortgage debt is considered "good debt" I am still paying about $400 each month in interest; meanwhile I'm earning a pathetic 0.12% yield in tax-exempt MM. The Fed has effectively "forced" me to pay off debt rather than spend.
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Post by yobria »

fishnskiguy wrote:It isn't that banks won't lend , folks. The real problem is nobody wants to borrow!
Try to get a mortgage in my area with anything other than a perfect situation and you'll find it's the banks which don't want to lend at the moment...even a torn W-2 can cause a mortgage to be denied...

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Post by SP-diceman »

When the stock market falls 50%,
zero is a good return. :)

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Post by natureexplorer »

The after-tax real yield of say an ING Direct savings account (1.1%) is actually not so bad due to the low inflation. For example, if inflation is 3%, after taxes a 4% interest doesn't look so good at all anymore. And real after-tax return is the only one that matters to me.

Ally's 5-year 2.4% CDs with an early-withdrawal penalty of only 60 days of interest can also provide a good alternative for some of the money you might otherwise keep in a savings account depending on your need for liquidity.

These reward checking accounts are complicated. One has to consider the opportunity cost of not using a 2% cash-back credit with float instead. I am definitely too lazy for them.
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