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Comment by dannyw | Hacker News Reader

In a competitive market, if the Fed is paying out 1.95% to bank reserves, there is no reason why my savings account shouldn't pay me that figure minus a spread for expenses and a profit spread.

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There are banks & credit unions that pay interest close to the fed funds rate. Unfortunately just not the mainstream consumer banks.

Some examples:

Goldman Sachs (1.90%): https://www.marcus.com/us/en/savings/high-yield-savings

Ally Bank (1.85%): https://www.ally.com/bank/view-rates/

Alliant Credit Union (1.80%): https://www.alliantcreditunion.org/rates

Buying Money Market funds also have similar yields and are frequently backed by treasury bonds. Vanguard's MM fund currently has a yield of 1.96.

Plus you get a tax benefit by buying Treasuries.

Money market funds aren’t FDIC insured.

In the crash of 2008, they were temporarily insured. It's not unreasonable to expect they will similarly be insured in any major financial crash.

I can't trust my emergency fund to the whims of backroom deals between central bankers, Wall Street, and whatever administration is in power when the economy is grinding to a halt, most especially for almost no additional benefit (comparing interest rates, the spread is only single digit basis points) over an FDIC insured account.

I can see your point, but I really want to stress for others out there reading this thread that it isn't responsible to hope for insurance that doesn't exist when you need it the most.

Yeah and I heard a friend who said redemptions from his money market fund was suspended for a brief period during 2008.

Dunno how long the suspension lasted, or if he was merely confused, but it would suck to not be able to withdraw money when you need it most.

How much does the transaction cost eat into the coupon though?

Up until recently the Fed didn't pay any interest on reserves (IOR). It was actually extremely controversial when they introduced it, but with quantitative easing it was operationally necessary in order to continue to set the Fed Funds Rate. Generally speaking Fed accounts are like checking accounts. The Fed doesn't issue CDs, they let the Treasury handle that.

Can you explain the uprising necessitya little more or provide a reference.

Seems strange to pay banks to do nothing, surely that reduces their incentive to provide capital.

The Fed started paying interest on bank deposits as a way of pushing liquidity into the market when the banks themselves were unwilling to do enough lending to restart the economy.

With the deposit rate at 1.95%, a bank has to decide whether they can earn more lending to clients than just parking the cash at the Fed. Obviously at 1.95% there is still an incentive to engage in lending, otherwise the fed would drop the deposit rate to encourage that behavior.

Your bank is paying you that, but it has branches and other expenses(ATMs). If you want a better return on your money, get an online bank. Marcus pays 1.9%. Ally pays 1.85%.

i believe there is another proposal suggesting every individual should be able to deposit funds with the fed

This was possible in Germany. At one point this service was closed. I think I still have an account there with the Fed (with 50 Euros or something in it).

Do you mean KdF beetle stamps? that particular investment didnt end well.

>As a regulator and central bank, the Bank of England has not offered consumer banking services for many years

Wikipedia says this, but not why.

Because it's a pain to do and not in their remit, essentially. They still offer business banking services. My employer, Monzo, has a business account with them.

It would place the central bank into an even more biased role. And offering one retail service is very costly, especially when there's no way to amortize that cost over many services.

Matt Levine at Bloomberg had a great writeup on this recently. (His “Money stuff” newsletter is fantastic.)

Basically: if you were to start from scratch today and build a banking system, you probably wouldn’t build exactly the one we have. On the other hand, given that we do have this one, it may be worse to pull the rug out from existing banks by providing a Fed alternative.

Well nothing stops you from investing abroad, For instance Investing in Indian Bank as a depositor will get you a guaranteed 6-7% return per annum depending on the bank. Long term deposits have even higher return rates, some smaller private banks even give as high as 8-9% on deposits.

> Well nothing stops you from investing abroad

Currency fluctuations.

That is not stopping you at all.

Well technically it's not but realistically it is.

Hedging against currency movements is fairly trivial and doesn't cost much, I've gone down this route in Vietnam after getting annoyed at being forced into investments by low interest rates ( putting savings in most western banks is going backwards).

1 year deposit pays over 7%, the currency moved in my favor but still happy taking out the hedge.

Getting a far better return than the riskier corporate bonds I hold locally.

> Hedging against currency movements is fairly trivial and doesn't cost much

The cost is essentially the (risk-free) interest rate differential that you were trying to capture in the first place.

https://en.wikipedia.org/wiki/Interest_rate_parity

"Covered interest rate parity (CIRP) is found to hold when there is open capital mobility and limited capital controls, and this finding is confirmed for all currencies freely traded in the present day."

There’s a risk that your money isn’t covered by the deposit protection schemes of either country, so if the bank goes bust you lose the lot. Even if you are covered, the amount you get back could be limited.

With that factor built in 6-9% doesn’t look so good.

Investing in Indian Bank as a depositor will get you a guaranteed 6-7% return per annum depending on the bank.

That would be free money, so it’s already priced into the exchange rate. All other things being equal if you transferred US dollars into an Indian account, left them a year, then transferred back then you would be no better off than if you had left the money onshore, but you would be down the transaction fees.

People who make money in FX trading do so by betting that interest rates will move in their favour, and interest rates influence exchange rates (or more accurately expectations about future interest rates set current exchange rates)

Holds true only if you convert your currency to INR. The dollar denominated deposits (FCNR) have far lower yield around 3.4% still better than what the US banks offer.

https://www.icicibank.com/nri-banking/RHStemp/rates.page

But I think you need to hold an Indian passport to open these deposits. I am not sure though.

Actually even i am not sure about that. There should be some route though, Foreign Institutional Investors do invest so there should be some legal route to circumvent this.

High interest savings accounts are currently paying over 2%

https://www.doctorofcredit.com/high-interest-savings-to-get/

I think that's what's happening, but the "profit spread" expands to fill any additional margin. It's not a competitive market and I see no reason to believe it ever will be.

That is a point not oft appreciated. There is a price at which your bank can maximally use your funds. The should use them at that rate. So what is the rate, and what is the bank that allows that?

My bank pays 2% if you swipe your card 10 times and have a direct deposit coming into the account :)

By using a debit card like this, you give up the benefits (and protections) of a credit card. You can get a credit card that gives 2% back on everything, or more in specific categories. Which way does the math work out better for you?

Capital One 360 is competitive with other mentioned banks; currently 1.85% for > $10k.

The benefit of the bank account is that you get interest on what you have saved. You only get cash back from a credit card on what you've spent.

Thanks for this info :) I swipe my card at 7/11 for a piece of gum 10 times per mont hahaa. I trust 7/11s infosec I guess, and I use my credit card for everything else.

I don't want to reveal my bank account balance but the interest generated per month pays my phone bill :)

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