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Comment by kchoudhu | Hacker News Reader

I remember when this came up on my Facebook feed a year or so ago. I shat all over it because they were essentially taking money in, calling it "saving" and then not paying out any interest.

Have they fixed that? Sort of. They now pay a $0.05 "savings bonus" for every $100 you hold with them for 3 months, for an annualized interest rate of 0.2%. Needless to say, the savings bonus won't go up when interest rates go up: it is a "savings bonus" and not an interest rate, after all.

Let's call this what this is: a gimmicky savings account with a crappy APY. Call me when their savings algorithm is mated with an automatic investment in my choice of low cost mutual funds.

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I've come to think savings interest is bullshit. In the past, whenever I calculated how much I'd earn in interest if I put away a decent part of my salary every month, it was always shockingly low, and this put me off saving.

Now I think of saving purely as a way to put money out of my immediate reach. For me, the reason for saving £200/month is simply that after a year I'll have £2.4k, not so I can get a paltry amount of interest on top of that.

From this point of view, all that matters in a savings account is customer service and what you call gimmicks. I would definitely try out this service if it came to the UK.

I totally accept some people may choose to give their finances the time and attention necessary to earn real interest, but for me saving is just paying future-me some money.

That's why it's called savings and not investment (I realise in some economic sense they are equivalent).

We have been engaged in collective madness over investment/savings returns. I remember conversations (probably 2007ish) where I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run. How is it that pension funds can be predicated on a 6-8% return. Well it only works if we have a 1) a crash every so often wiping out everyones gains or 2) hyper inflation (or 3 some other people just giving money away).

In fact we seem to have reached a somewhat contradictory outcome where assets inflated once, and then we continue to live with low returns and inflated assets (some people would have it that the baby boomers are protecting their wealth), the zombie japanese economy mode.

It is a somewhat arbitrary and feudal system of haves and have nots. You bought a house at the right place/time? Well you're a millionaire now (even if you paid nothing but intrest on the mortgage). Anyway it would seem to make a mockery of the economic precepts by which the modern economy is supposed to run.

I have always been pro-crash (even more so anti-boom).

> I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run

Someone should point out that this line of reasoning is just flat wrong for reasons obvious to any first year economics student.

Whilst it sounded cute, an actual explanation would have been great. Mind expanding?

Total wealth is not fixed over time. If you spend X resources making a solar panel and it produces X + Y resources over it's lifetime there is a net gain of resources even ignoring money.

At scale investment returns are bound by GDP growth and how much of those returns are spent.

It's not a zero-sum game, there are more assets now than when we all lived in mud huts or roamed the plains in search of food. Were there to be no real returns to investment we would all have just been trading around the same fixed amount of assets for the last 10,000 years, which is of course nonsensical.

His argument is that nominal returns adjusted for inflation in the long run average to zero. Which is saying that there is no such thing as a real return to investment. However that is incorrect, as investing in productive assets can increase the world's net wealth and productive capacity.

As one can observe by the vast increase in our collective productive capacity from the stone age through the present day.

Substitute inflation for wage inflation. It's not that there are no returns, but that the rate of return is completely decoupled from reality. Productivity growth is what (1-2%)? Real terms wage inflation is what (~0% since the 70s).

Productivity growth is just a part of the equation. You have population growth and several other factors.

He's actually correct if you're talking strictly about the monetary framework. That we are as a society collectively richer (i.e. we have more stuff) is indisputable - but if you get into how the stuff is priced, and what happens to those prices over time, as more stuff is produced, and the money supply grows at the same time, it gets decidedly murky as to what prices and value even mean.

His point however was not about stuff, it was about return on savings i.e. payments in money of money. That is indeed bounded.

"where I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run. ".

Sorry, but i hope you realise now you're wrong and I hope the banker explained why.

It should read monetary supply inflation, not basket of goods inflation.

The greater point is how can ordinary expected returns exceed productivity growth, normal monetary supply inflation and indeed gdp growth.

> We have been engaged in collective madness over investment/savings returns. I remember conversations (probably 2007ish) where I was trying to point out to a banker that the nominal return cannot exceed inflation in the long run. How is it that pension funds can be predicated on a 6-8% return. Well it only works if we have a 1) a crash every so often wiping out everyones gains or 2) hyper inflation (or 3 some other people just giving money away).

We live in a world with increasing productivity which is the X factor you are looking for. For an amazing amount of time we have been able to make more stuff with less work which generates huge returns. That's not to say it is infinite, but it does allow pensions to get 6-8% returns without a crash or hyperinflation.

If you haven't already you should read Thomas Piketty' Capital in the Twenty-First Century.

>"the nominal return cannot exceed inflation in the long run"

Shouldn't that read "inflation + GDP growth rate" ? That's how long term investments in stocks are estimated.

Now I think of saving purely as a way to put money out of my immediate reach.

That's how I save. I call my hack the "No Budget Budget" and wrote an ebook about it to explain my method: https://leanpub.com/nobudgetbudget

I might be mistaken, but I think this is also how YNAB encourages people to use their Savings accounts.

Eh, some online banks give good interests like Ally with 1% savings. It's not as good as investing but it is easy and significantly more than any major bank.

Ally is also compounded daily, instead of monthly like most low-end savings accounts.

"Good" should be qualified here. That's still significantly less than average US historical inflation.

Ally gives a crappy return. It's just less crappy than other banks.

The concept of "saving" does not make sense past the point of a 6 month emergency fund (for _most_ people's financial needs). All of that money should be buying investments not sitting in some database losing value over time.

Because he's using pounds, I assume he is in the UK, where you can get 3%-5% in current accounts within certain limits. Even on a relatively small amount of savings, those amounts are decent enough to worry about, and it certainly makes sense to park your money in the most appropriate place. It literally takes about 2 minutes to find the best rate (with MoneySavingExpert, for example).

Example: saving £200/month, with 3% interest compounded monthly - after a year you'll have saved £2,400 and earned £40 interest.

Ok, day to day, £40 is real money.

But £2.4k vs £2.44k, over a year of your life? I don't agree that's worth worrying about. Not if worrying about finding the best rate means choosing a bank with shit customer service or a shit website etc, which could ultimately lead to indecision, inaction, and saving less money. Maybe you're more disciplined than me though :)

Agreed, interest has ceased to mean anything significant. And don't forget to report your pitiful interest as ordinary income on your taxes! (Well, Americans at least; in the UK they tabulate that for you and don't make you figure it out yourself on top.)

In 2005, when online savings were paying 5%, i would agree.

Now, "high yield" savings pays 0.75%, and normal banks are 0.1% or less. If something like this helps you avoid spending, it's probably worth it.

You're missing one huge benefit of this, and honestly it seems like they are too. For me, the biggest draw of a service like this is keeping your savings relatively inaccessible. Whatever money they're holding for you can only be accessed with a ~24 hour delay, which gives you pause before you blow it on something stupid, but is still quick enough for emergency use. They should really push this as a feature. They should make the delay arbitrarily configurable. They could have an option where you have to ask for a withdraw twice with a delay in between. They could even have an option where you have to explain what you need the money for. They could have a human send you an SMS trying to talk you out of any stupid purchases, but even just writing an explanation to /dev/null would help a lot of people avoid impulse buys.

Plus, 0.2% APY is still better than my savings account pays.

I think that is a bit harsh. Some people find saving very difficult. Interest rates are rock-bottom anyway. This is a service which, for a small fee, helps you to save if you are really bad at it. It's not for me, but I can see this being a starting point for someone who has never managed to save successfully.

> for a small fee

It claims to be free

It is, like google is free.

Isn't that what Acorns does? http://acorns.com/

I wasn't aware of them -- but yes, it is.

0.25% in fees is kind of rich for a pure passthrough service, though.

anything charged as a percentage is a scam; and yet many industries are fully based on it (e.g. property). There is no justification in almost all services to charge a percentage where no risk is assumed.

It's about ability to pay. Of course it's extremely unlikely for a realtor to do $30k worth of work to sell a $1 million house. But they're also going to work to sell that $60k house and they will probably put in more than $1,800 worth of their time.

Having a flat fee would make it practically impossible for the poor or even lower middle class to sell their homes without having to write a check for the privilege.

> But they're also going to work to sell that $60k house and they will probably put in more than $1,800 worth of their time.

I find this uncommon. Many cheaper houses (<100k) in Atlanta won't be supported by Zillow. Similarly, cheaper homes will not have many pictures, sometimes just a street view picture. And if you do call a realtor to look at these, they vet you much more thoroughly than a 200-300k house.

Have you looked at interest rates lately? No one even wants deposits these days.

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