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Comment by soVeryTired | Hacker News Reader

"Savings accounts are stupid, you should leverage into the stock market" isn't a particularly sensible way of thinking about managing your money.

Dumping all your money into the market ignores that fact that there's a dependancy between how likely you are to need the money and how well the market is doing. Did equities just crash 30%? That means the economy is probably in the toilet, and you might be about to lose your job. I bet that cash portfolio is looking pretty good right about now.

Every dollar should have a purpose and be invested accordingly. If you're investing for a 10-year+ horizon, then you should absolutely put the money in the stock market because you can afford to ride out any drawdowns. But if for example you're saving for a deposit on a house, or if you can't afford to lose the money, then cash is probably the right choice.

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No, it really isn't. There are much lower risk options than stocks or bonds that are liquid. All of the savings accounts I have seen for quite some time pay below inflation, so you are actually losing money using them. Most people do as you say though.

What are these options that are liquid and pay above inflation?

I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer.

I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages.

I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1].

[1] https://www.treasury.gov/resource-center/data-chart-center/i...

interest rates on savings accounts [...] in the UK [are] competitive with government bonds.

Looking at the rates for UK government bonds, it looks like those are also below inflation (e.g 5 year yields are around 0.6%). If there were any savings accounts paying above inflation, I think exchange rates would be shifting accordingly in the absence of capital controls. I suspect that savings accounts representing a poor RoI is therefore a global phenomenon.

The only thing which I can think of that the parent could be referring to is the money market. I think I'm as lost as you as to what he is getting at.

I'm really talking about retail savings accounts: most banks in the UK pay give 2%-3% on deposits up to a cap, with no interest paid on funds deposited above the cap. However, it's often possible to get around the cap by opening multiple accounts. You can stash amounts into the mid tens of thousands like this, but for higher values it gets a bit trickier.

These are retail products. It's true that an increase in the yield on government bonds would move the exchange rate, but the kind of institutional investors that move money in enough bulk to affect an exchange rate have little interest in retail deposit accounts.

> I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond.

Why are you looking for a single, magical asset class with superior risk-adjusted returns? If you invest in a diversified portfolio of stocks, government bonds, real assets and cash, you'll find it earns a solid rate of return with less volatility.

> No, it really isn't. There are much lower risk options than stocks or bonds that are liquid.

Yes, what you want is the repo market, or the eurodollar market. But wait, see what happend on these market during the last crisis ? If you really want a risk-free market, what you want is tradind the fed funds market, except :

1. You can't since you aren't a bank.

2. The interest rate is shit.

3. It's basically what you already do when you have your money on a bank account.

There is no such thing as a free lunch, if you want something safe and liquid, it's not going to pay well.

In theory its all great until you get punched in the face. Meaning, reserve cash isn't important - until it is.

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