Banks are slow to increase rates on savings accounts, but quick to reduce them | Hacker News Reader

Banks are slow to increase rates on savings accounts, but quick to reduce them

jpkoning.blogspot.com

235 pointsjpkoning176 comments

The problem is that most people don't want to change banks.

If changing your bank to get a better savings rate took 15 minutes and had no other consequences, banks would be updating their rates by the second to beat one another. But it doesn't. If your mortgage, credit cards, car loan, etc, are all with the same bank then switching your bank account only just to get 0.1% higher interest is a huge hassle for little benefit. Especially if you don't have much money sitting in a savings account- even with $5000 in your account, a 0.1% difference is $5/year.

So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life. Meanwhile, leaving rates low improves the banks bottom line. Short term vs long term tradeoffs.

In short: banks have little reason to raise savings account interest rates regardless of what their central bank gives them.

And your typical mortgage contract will include clauses that stop you from moving your mortgage to some other provider without penalty. You can get badly locked in like that with rates from a decade ago.

AFAIK only PMI can have prepayment penalties. You’ll still have to pay closing costs on and qualify for a new mortgage.

This isn’t true in the US. Typically, you can refinance anytime you want, and I’ve never seen a prepayment penalty.

Closing costs aren’t a penalty, as it does take some work to get a mortgage. Although in free money times, even that is sometimes waived by lenders.

In the UK this has got a lot better with banks being forced to offer an "account switching service", which makes it trivial to change your current (checking) account. Things like salaries, standing orders and direct debits (for utility bills etc.) are automatically transferred across. It doesn't work with savings accounts though as far as I know, so it doesn't help much with managing interest rates other than interest-paying current accounts.

As you say though, there are so many complicated conditions around getting paletry interest rates - only available on first £5k, or rates that reset to 0.1% after 12 months - that I'm not sure people would change much anyway.

But it's also not a problem for savings accounts in the first place? Other than if you have a standing order(s) paying in I suppose, but that's probably only one, and unlike direct debits etc. all in your control and less hassle to move.

It's certainly less of a problem. But people are notoriously lazy, and a service where you could switch savings accounts in the same way as a current account would make it more likely. It's the cost / benefit trade-off, so if differences in interest rates are very small you need to make it even easier for people to switch.

For example, I'm being paid 0.3% on a current-acount-linked savings account. If I could switch that to NS&I (1%) more simply than I can currently, I would. But given the relatively low amount in the account, and how much I feel my time is worth, it just doesn't feel worth it to me. Yeah, I'm lazy. But so are lots of other people, and it would change the dynamics of the savings account market if it was easy enough to make me want to switch.

Does that work reliably in the UK? Germany has similar a similar mandatory service, but the few people I know that switched banks using that service all ran into major trouble, like rent payments, insurance premiums etc not going through and the two banks pointing at each other "we don't know, it's those guys".

In the end, I believe the best course of actions would to simply make account numbers transferable. There's no good reason why I shouldn't be able to switch my bank and keep my account number etc just like I do with my mobile phone number and provider. Of course, Bank Codes being used makes this more difficult (thank you, regulation).

I've switched banks 4 times over the last few years to take advantage of different deals offering a few hundred pounds or so for join-ups. Never had an issue.

I feel like account numbers being transferrable would be worse for potential for fuckups.

Yes, it works reliably and comes with a guarantee that "If anything goes wrong with the switch, as soon as we are told, we will refund any interest (paid or lost) and charges made on either your old or new current accounts as a result of this failure."

https://www.currentaccountswitch.co.uk/Pages/Home.aspx

https://www.currentaccountswitch.co.uk/SiteCollectionDocumen...

would be way easier if iban's would be interchargeable or some kind of iban proxy.

We should each have our own account number that is ours. This could be registered with the state, when born. It would contain a pointer to a private bank account. Banks would have to implement a one day transfer to flip the pointer.

And while we’re at it, we can strip the account number of its powers as a payment / deposit authorization. It supremely sucks that once someone has it and your routing number, it can never be rescinded without changing account numbers (i.e. closing and reopening the account, re-establishing direct debits / deposits, etc.)

Who is maintaining the ledger exactly? On what terms? Who has access to that account? What controls are they entitled to place on it? Is it maintained by the government?

If yes, then you have a whole new set of problems. Now you have all your funds in one basket. (Remember, you've implemented the indirection mechanism, so it doesn't matter which bank you do business with, it's this weird government one all the time).

Politically, I don't see it happening. Or if it does, it"'ll completely change the color of the financial sector most likely, as most regular people stick with this weird government account, but anyone more financially entrenched (or who have trust issues, and do not desire to let the G-man sit on their financial transaction history) flee to more "discrete" financial institutions.

Fintech is one of those that rarely makes anything fundamentally "better"; just more expensive with more opportunities for fee extraction, and the capability to exploit those economies of scale like nobodies business.

Maybe it is the way to go for a government maintained version. Might make the IRS's job that much easier. Maybe they can get away from only going after the small fry and actually concentrating on nailing down more complicated forms of tax evasion.

Sorry I'm not American so I'm not obsessed with the idea that the state cannot maintain something. Your banking sector sucks compared to Europe.

That's absolutely fair, and I admit, I wouldn't be fundamentally opposed to it. The little magic 8-ball in my mind I use to gauge the plausibility of a particular political direction of development simply sees far too many endemic issues with American institutional philosophy to see something like this gain traction. Mind, I've worked in that space. It's a ridiculously profitable industry for those that operate in the space (usually with customer hostile profit generating models, and demographic engineering to ensure you're hitting the most vulnerable folks for revenue extraction; part of the reason I ended up getting out and refuse to look back).

As it turns out, the profitability per employee person in the company can be extremely high, which means there is a lot of lobbying potential to keep a cohesive National government maintained/specified banking infrastructure from coming into existence.

I'm not just trying to take cheap shots or be dismissive of the idea. It's just experience tells me this is well within "everyone stops being a dick" territory in terms of probability of realization through organic development short of some higher being deciding I need a lesson in being more humble today. There is some synergy or likelihood of an indirect development in that direction with the whole Stimulus boondoggle going on in Washington, but the resulting implementation will almost guaranteed be challenged as soon as any hint of the present crisis having resolved comes around. Private industry in the U.S. as a rule will raise hell to destroy a public alternative as unfair competition on free market principles, notwithstanding the self-referential inconsistency the private actors demonstrate at the first chance they get. This is why there are only really 3 public trust quasi-Corps I'm aware of. Post-Office (Constitutionally guaranteed), Freddie Mac, and Fannie Mae. Okay, technically the Federal Reserve, but to be frank, their track record is so spotty, it feels more like the most elaborate financial shell game ever perpetrated than an institution to consider seriously effective.

It hurts frankly. I hate that the sector is as big as it is because we can't just all agree that maybe this thing is pervasive enough to warrant folding into the basic Public Trust toolkit. That's just the reality on this side of the pond though. We measure the trustworthiness of Government as a repository for broad sweeping social power based on the least virtuous operator in living memory. Unfortunately, we just haven't had a long enough run where people could be trusted not to abuse anything more functional than what we have. Quite the opposite. Gives me a headache just dwelling on it most days.

You've been told you can't trust the government for almost 40 years now. What evidence do you actually have that the government is any less "trustworthy" than large corporations? Or more wasteful? Or less efficient?

There are endless stories of government boondoggles ... precisley because the government is public. Dig a little deeper and all the same stories of organizational dysfunction exist in corporations large and small - even in some co-ops, sad to say.

Don't just buy into the relentless right-wing propaganda that government is broken/inefficient/useless/corrupt. Seek out actual evidence. Recognize that all human organizations have issues and that once (say, the 1960s) we used to believe (and devote significant resources to the idea) that we could improve them. Government is no exception to that, any more than Verizon or REI.

But we avoided the Holocaust so far, so we've got that going for us.

Huge congratulations on that, it's good to set standards. Perhaps you might consider making them a bit higher?

The ACH system is run by the Fed(read us gov) already

This is true, but there's nothing that prevents you from having a second bank for savings only. This is what I've always done, open a savings account at whatever bank has the best rates, typically an online-only bank. Savings is useful for liquidity in an emergency and I'd be crazy to not try to get a few points on it in exchange for a few clicks.

This is my route too. I have accounts at 4 institutions with various levels of service.

2 of them provide good rates on savings 1 is local and has ATMs and branches in my area 1 provides a fantastic online experience

Once you've verified accounts between banks, it's fairly painless to transfer between them (and usually free if you initiate the transfer from the bank that will receive the funds)

Works very well and gives me a lot of flexibility with basically no additional work. It takes all of 5 minutes once a month to configure deposits to hit the current winner on interest rates.

I'd also note that I've been happy to see ACH transfer times decrease dramatically in the last 5-6 years. Used to be consistently 3 days, 2 if you were lucky. I now regularly see same day transfers. PayPal -> bank is getting close to european speed: if I schedule an ACH transfer with them around midnight, it will be in my bank during the following 12 hours.

Yeah, I moved my savings from the < 0.1% Citibank "Savings" account to the 2.2% Ally Bank last year.

Setting it up was as hard as making a HN account.

I can transfer money CB -> Ally with a few clicks. Only real friction is I can only move $10k at a time every N (4?) days.

Before you get too excited, the Ally rate is now down to 1.1%.

Try an American Express savings account. Usually the same rate as Ally, but allows much higher transfer limits. And you don’t have to have an AmEx credit card to open one. It’s my go to “middle man” account between ones that have ridiculously low transfer limits. I don’t know why these limits aren’t set as a percentage of the account balance at least. If it’s for reducing fraud, then how about implementing proper two-factor auth for logins as well as transactions over some threshold. The banking system in the US is such an embarrassment in many ways.

I left Capital One Savings (formerly Ing) because their 2FA required me to own a mobile phone registered in my name. I even sent them serious articles on the relative risk of 2FA using SMS vs email. Completely ridiculous. I had the accounts for about 15 years, and pulled out everything and pushed it to Marcus.

Is it a Citibank limit that you only move 10k every N days? I changed banks to Ally last year and had no such issue.

Yea, specifically with Citibank’s external transfers interface. You can write yourself a check for the full amount, but then you’re limited by ally’s edeposit limit or mailing it. Or if ally can do an ach pull that’d work too.

It's been a while since I dealt with it, but I think $10k is the biggest amount I can transfer without any fee.

I can always wire any amount of money.

> Only real friction is I can only move $10k at a time every N (4?) days.

The amount of bullshit that you Americans put up with in banking on a daily basis is mindboggling for me as an European. A bank that couldn't give me all my funds in one day would never see my business again and yield themselves a complaint at the regulatory agency.

Your first sentence is 110% correct (as an Anglo-American). It is embarrassing for me to see the ease (and speed) with which my brother & stepfather (UK banking) move money around.

The second sentence is not 100% correct, though. The limit is not on accessing your funds in general, but specifically on using the ACH to move funds to a different institution. In practice, of course, in an era of online banking, it's almost the same thing - I mean, what else were you going to do with all your funds anyway?

Some questions from an American:

Are transfers that take like a day or two that inconveniencing cause instantaneous transfers would only benefit me in getting a tiny bit more interest for that extra day or two i could get interest on it? With how low interest rates are these days, that basically makes it useless for me.

If your money goes to the wrong routing or account number, can they fix that (literally happened to me where money got sent to the wrong routing number and I went to a chase branch and explained what happened and they fixed it)?

What other bullshit do you perceive we have? Granted, I only use my bank for my automatic income direct deposits, my auto loan which automatically gets pulled from my checking account, automatically paying my rent, automatically paying off all of my credit cards in full, and very occasionally using an atm to pull money out of my checking account. That's it and i literally don't use a bank for anything else which could explain some of the disparity as I've read you guys actually use your bank more often as you guys use cash and debit cards a lot more. I check it just a few times a month to see what the balance is and then occasionally siphon off any income surpluses to vanguard who holds all of my savings and investments and they are awesome.

> Are transfers that take like a day or two that inconveniencing cause instantaneous transfers would only benefit me in getting a tiny bit more interest for that extra day or two i could get interest on it?

Waiting in the case of a reasonable savings fund of 100k for way over a month (10k every 4 days in the example I replied to) to be transferred sucks.

> With how low interest rates are these days, that basically makes it useless for me.

It's not about the interest rates, rather a "peace of mind" thing. I am used to clicking a button in online banking and know that the recipient will have the money, and all of it, in maximum 2 banking days and I don't have to spend mental energy on tracking it, worrying about a physical check being held up or lost in postal service, the recipient taking his sweet time to cash the check...

> If your money goes to the wrong routing or account number, can they fix that (literally happened to me where money got sent to the wrong routing number and I went to a chase branch and explained what happened and they fixed it)?

IBAN prevents this by having a two-digit checksum, that catches 99% of typos, number swaps and other entry errors. If you still manage to mess up, you have a ten day window for a recall. Direct debits can be reversed for eight weeks.

> What other bullshit do you perceive we have?

Still using physical checks with all their downsides. Direct debit being insecure to the point that someone getting your account data (or card swipe) can raid your bank account with the money being tied up for weeks (SEPA direct debit reversal is instantaneous and fully returns the funds). CC "rewards" cost being placed on the merchants (thus raising the CC costs for all customers) instead of being capped like in the EU. Did I already mention physical checks?

> Waiting in the case of a reasonable savings fund of 100k for way over a month (10k every 4 days in the example I replied to) to be transferred sucks.

That 10k limit is for one shitty company. I don't have those limits because I don't use a shitty company. Does europe not have shitty companies? Different class of shitty, but weren't people unable to access their funds in wirecard because it essentially imploded due to fraud?

> It's not about the interest rates, rather a "peace of mind" thing. I am used to clicking a button in online banking and know that the recipient will have the money, and all of it, in maximum 2 banking days and I don't have to spend mental energy on tracking it, worrying about a physical check being held up or lost in postal service, the recipient taking his sweet time to cash the check...

Maybe other people are different, but I've never experienced a lack of "peace of mind" with any transfer. Every transfer I have done is instantaneous in that both the sending account and receiving account acknowledge the transfer and just put it in a pending status for a day and no transfer I have ever done has failed so whats the big deal?

> IBAN prevents this by having a two-digit checksum, that catches 99% of typos, number swaps and other entry errors. If you still manage to mess up, you have a ten day window for a recall. Direct debits can be reversed for eight weeks.

Interesting, not sure how that works but it does sound a lot nicer than the routing and account numbers we have here.

> Still using physical checks with all their downsides.

I have literally never written a check in my life. Granted, I know older people who still use them but I have no need for them whatsoever so who cares? I pay all my bills digitally and I can venmo friends cash digitally too.

> Direct debit being insecure to the point that someone getting your account data (or card swipe) can raid your bank account with the money being tied up for weeks (SEPA direct debit reversal is instantaneous and fully returns the funds).

I don't think I use that.

> CC "rewards" cost being placed on the merchants (thus raising the CC costs for all customers) instead of being capped like in the EU.

Credit card fees I can basically get entirely back through the reward with a single credit card. Could it be more fare with capped fees, sure and I'd support that policy. As a consumer, I don't care though.

I think most people are worried about changing banks because their current bank hits them with annoying fees, and they don't want to double the problem by having two banks. But online banks (along with small local banks and credit unions) do not charge monthly fees. You can open a new account with a small deposit, receive a new debitcard/checkbook, and then slowly transition. The only squeeze you'll feel is the minimum balance requirement at your legacy bank as you split your balance to cover transactions at both places.

I have always believed there is room for an $xx/year service in the US that provides a virtual bank account number so you can easily switch banks in the background. The decrease in switching friction may actually make banking interesting/competitive again.

Fidelity and other major online brokerages do this with their money market accounts. It doesn't chase an optimal yield like what you are proposing, but that would be interesting. Instead, they use a large basket of money market and savings accounts at US banks and interest payments on your savings are drawn from a random bank in the basket each month. Because the federal reserve sets interest rates, it's difficult to chase yield in bank savings accounts. You'll always do better with bonds and stock dividends.

There's no need. No one knows your savings account number, just your checking account number.

Once people started using any such service, they would realise that their customers are locked in / can't switch easily, so they'd raise their prices to $xx+1 each year... and then you're back to where you started from.

Opening a online, high-yield savings account takes much less than 15 minutes. Many of these banks dont even offer checking accounts, so you couldn't switch everything else over even if you wanted to.

Many people in the US have no problem opening and using multiple credit cards, so having multiple bank accounts shouldn't be too difficult.

You don't earn interest on your money while it's in transit (seems to be around 1-2 days). If you're constantly shuffling money around, it might not make sense unless the rates are significantly higher. You'd have to do the math. Here's a calculator I found: https://www.mymoneyblog.com/the-ultimate-interest-rate-chase...

It's also basically as easy to stick with your current institution and put cash into ICSH (https://www.ishares.com/us/products/258806/ishares-liquidity...) or if youre worried about inflation TIP/SCHP (https://www.blackrock.com/us/individual/products/239467/isha... https://www.schwabfunds.com/products/schp)

It has the benefit of working anywhere, without switching banks, and the time to liquidate and get it back into your checking account will be 2 days, similar to moving money between institutions. The benefit being the entire transaction happens within the purview and responsibility of one customer service organization.

It's not quite cash and interest, but in effect its going to be basically the same thing.

> So what banks are actually competing over is the people who happen to be shopping around for a new bank- something most people do only a handful of times in their life.

It's worse than that. I shopped around for a new bank based on my needs -- I picked Capital One specifically because of their advertised "no foreign transaction fees". [In fact, there's a fee around 1%, it's just not called a "foreign transaction fee". But 1% is low enough for me.] Interest on savings accounts didn't register at all.

And really, interest on savings accounts shouldn't register for anyone looking for a bank account, because savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.

I wonder if most people start out banking based on where their parents bank? And most only switch when there is an event which make them unhappy with the bank.

> you're doing it wrong.

What else do you suggest that is liquid and essentially risk free? There is a purpose for this type of product. If not a high yield savings account, what is it?

> savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.

Agreed.

> And really, interest on savings accounts shouldn't register for anyone looking for a bank account

Disagreed. Emergency funds/long-term cash deposits are a real and valuable thing, and while it's true that any money in a savings account loses value to inflation, you'd be crazy to not try to minimize the gap between your interest rate and inflation as much as possible. The difference between a 0.1% interest rate at Chase (or whatever) and ~2% at Ally is huge (I realize no one has 2% interest rates anymore, but those numbers were both roughly accurate before Covid).

> savings accounts are a terrible, terrible way to invest your money. If you have money in a savings account for the purpose of earning interest, you're doing it wrong.

Note that this wasn't always the case, though. Until not too long ago, keeping your money in a savings account, not making too many "risky" investments, and benefiting from compound interest in the long term while saving for retirement was considered basic financial literacy.

However, by now interest rates have been near zero and well below inflation for the entire adult lives of anyone under ~35, so the common wisdom has shifted to investing your money in the market being basic financial literacy.

> However, by now interest rates have been near zero and well below inflation for the entire adult lives of anyone under ~35

When were interest rates on bank accounts not below inflation? Bank interest failing to even keep up with inflation is not a recent phenomenon; as far as I'm aware, our low rates now are better, inflation-adjusted, than the old high rates were.

It’s a cartel. Good luck with a consumer-driven fix.

There are services (google Max my Interest, this is not a product plug) that will allow you to automatically shuffle money between many high-yield online savings accounts. They'll make sure that your money stays in the highest-yielding account, but remains under the FDIC insurance limits.

For the lazy there are prime money market funds.

In this panic and the '08 panic, the Treasury/Fed stepped in to protect prime funds.

It's not fair to people who buy government funds, or jump through hoops to spread cash across banks. But that's what they do.

> It's not fair to people who buy government funds

Are you suggesting our government should prioritize investors who buy government bonds over its own citizens (who at least in theory, would have to pay for those bonds in the future with taxes)?

No.

I am saying that money market funds that buy short-term treasuries ("government funds") have the same level of safety as insured deposits. Because of this safety, they have lower yields than prime funds which invest in unsecured short-term corporate debt.

It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.

> It is unfair to the careful people who invest in government funds to bail out prime fund investors every time it looks like they might lose 0.5-1%.

Can you explain this more? How are they bailing out prime fund investors?

That's fine, I use a credit card like a charge card, have my credit union as my check clearing house with minimal operating funds, and float the rest where I can get good rates. I can shop around the credit card and savings accounts at any time.

This seems like pretty typical market behavior to me. Are we really surprised that banks are taking the opportunity to increase their profits by choosing not to pass down all savings to customers?

The same exact thing happens with gas stations. The price of gas never falls quite as fast or far for the consumer as it does for the retailer, but gas stations will instantly respond to price increases. I’m sure there are dozens of other examples of this.

Most companies I ever worked for did the same, in particular the ones in the oil&gas sector. Any increase in crude or taxes would immediately be passed down to the consumer. Any decrease and they'd be issuing a press release stating that "the markets don't respond so quickly to price fluctuations".

It works best in industries with no real competition because of the high barrier of entry, and with a common interest between the players to keep the practice going, even when there's no explicit collusion or cartel forming.

I can never seem to find that "Invisible Hand" when I need it....

I heard this story / explanation before:

You own a gas station and you want to fill up your tanks so you call the distributor and pay $1 / gallon. You then sell that for $1.10 / gallon making a 10% profit.

Now prices of crude doubles and you have 1000 gallons left to sell. It’s going to cost you $2 / gal to refill so you immediately raise your price to prevent a loss and cover the next fill.

I don’t know how accurate that is to the real situation gas stations face but I’d never thought of it in terms of selling higher to afford the next bulk delivery.

Oh ... interesting take. But how did they order the first tanker? Surely there has to be credit involved in most cases.

Yes, typically bought on credit and then sold for cash with which to buy the next load on credit, etc.

But when the price drops back down you don't immediately drop your price because why would you charge $1.10 for something you paid $2 for?

But your competitor will lower their prices when they get a refill, so you may end up having to lower your prices before you get your own refill.

Yep, correct.

This is what happened during Katrina and some of the hurricanes of the past decade or two.

The situation with the banks is slightly different.

The odds that the product, money, will cost more for them in the future does not line up with the recent history of bailouts, regulation changes, etc.

During Katrina, for example, it was a safe bet for the gas station owners that the next batch of gasoline could cost significantly more. A reasonable assumption due to the multiple wars in the middle east combined with a bad hurricane season shutting down gulf coast refineries.

In other words, the Federal Reserve did not run a discount window to provide cheap oil to gas stations. Even the strategic petroleum reserve, if tapped, would only benefit the refineries.

At any rate, one could argue that in both situations the entities involved made the safest and most profitable decision available to them.

The gas station is an agent of the oil company and gets paid commissions. The gas is on consignment, owned by the upstream oil company.

The big oil company uses futures and options to manage risk.

All aspects of that industry have slowly reconsolidated, so the market forces that push prices down are generally weak.

Also, most gas stations don't make significant profits on gas. They make more profit on the attached convenience store.

There are exceptions (e.g. near airport rental car returns, or in places where drivers aren't paying for their own gas — there used to be a Shell near San Mateo City Hall that always got on the front page of newspapers)

That's nice but doesn't explain 30% hikes the day after a global supply disruption. They still have cheap gas in their tanks.

I understood it that everyone in the chain raises their prices to cover how high it’s predicted to be.

Doesn't this just prove that there is not a competitive market in these industries?

If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch.

The fact that prices are quick to rise but slow to fall is dependent on consumer apathy and monopolistic behaviour/collusion.

It might be typical market behaviour, but it's not the perfect market that economists commonly base their models on.

> If I - and everyone else - could quickly identify which bank/gas station was acting in my interest without colluding, I would immediately switch.

I doubt this would be the case for most people for a couple of reasons.

First, gas stations are pretty transactional businesses that don’t rely on recurring customer relationships to stay afloat, it’s really all about the location. When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way.

Second, when gas stations maintain prices as their upstream costs come down to pad their margins, they’re doing so in cents per gallon, not dollars. A customer may save a dollar or two depending on the size of their tank, which isn’t enough of an incentive to stick it to the greedy gas station because you gotta be sure that the next gas station you’re headed to isn’t doing the same thing or costs even more. The gas station, OTOH, probably sees hundreds if not thousands of dollars in extra revenue per day depending on their volume for doing this.

> When was the last time you researched all the gas stations in your area and looked for the one that you felt served your interests above all the others? Nobody shops for gas this way.

I do. I own a classic(ish) car that both requires high octane gas and no ethanol. There's one gas station chain around that can be relied on to have it (in addition to every other fuel option imaginable). But I'm a relatively price-insensitive customer; I'd probably still buy from them at $5/gallon when others are at $2.50. Part of that is because of being happy with the chain, and part of it is anger at other chains for dropping non-ethanol options.

>it’s really all about the location.

Your claim is that the gas station has a monopoly over its location and is therefore able to engage in monopolistic behaviour and depend on consumer apathy - this does not really negate my point.

Airline "fuel surcharge" ticket fees come to mind. As high fuel costs plummeted, the fees did not.

That's different. It's just marketing BS to artificially suppress the advertised price, which does float competitively.

It may be typical but it is a useful counterpoint to the idea that markets are efficient for consumers. If markets “worked” as so much propaganda insists they do, banks would rush to increase interest rates, and gas stations to cut prices, when market conditions allow in order to better attract customers. In reality market inefficiencies allow predatory behavior (it takes time for consumers to notice interest rate changes; gas stations can practice soft informal forms of collusion). Free market and anti regulation advocates like to deny or avoid discussing this.

Online only banks offer great rates on savings accounts. The Fed has an influence but these rates are market driven. If you want high rates, look for them and put your money there. Many financial products are only available to the wealthy but in this case anyone can do this.

Online only banks have fewer expenses (no branches or staff in them). This appears to translate into higher rates which is a selling point for them.

I think traditional banks, which apparently used to have much better rates even with all the expenses, have found that people are perfectly willing to give them their money practically for free. The newer online competeritors need something to draw in costumers.

Savings account rates are terrible compared with alternative investments though, even cash-storage investments.

Could you give some examples, adjusting for risk?

No penalty CDs are strictly better than savings accounts. I was able to lock my emergency savings into a 1.6% CD the day the Fed announced rates cuts.

Why are they strictly better? You remove interest rate risk at the expense of yield. They currently pay less than high interest savings.

Whenever I looked at them last year, they were always slightly higher yield than the online savings accounts. Perhaps it was just a promotional rate.

I’m not aware of anything with that risk / liquidity profile which pays better? In fact theoretically there shouldn’t be anything.

Well, that sort of depends on how you value FDIC insurance.

Not any higher than SIPC

- High yield savings accounts

- CDs

- Money market accounts

All pay much higher than a typical megabank savings account and are equally as safe.

Sorry i meant better than high yield savings.

Bond ETFs are right now around 2% yield with slightly higher risk than a savings account

This is why the stock market is still going up. There is no where else to put your money. We need better 1-3% returns for savings and 401ks outside of equities. Where are people supposed to put their money these days?

Bonds?

You're not supposed to keep your money anyway. That's literally the whole point. Rates are so low because they're trying to get you to spend.

Same with fuel prices. War in the middle East? Gas prices jump up overnight. Slump or excess? Consumer prices drop ridiculously slow. Middle men will always use any excuse to extract more from both sides.

I guess that’s true in most cases, a lot of people seem to be saying it, but a few months ago we had gas cheaper than $1 per gallon quite suddenly.

That price drop was more the result of purchase demand drying up overnight with everyone staying home (a car not driven needs no fillups). When the local retailer goes from moving 1,000 gal per day to moving 100 gal per day (numbers made up) that incentivizes the retailer to drop their street prices to try to generate extra demand at the point of sale.

The other price increases/reductions being discussed are when the price of crude takes a dramatic swing, one sees the street prices swing asymmetrically. Crude goes up by $40/barrel today, for one day, street prices for gasoline goes up tomorrow and remains up. Crude drops by $50/barrel next week and stays down, it takes weeks before the street price of gas falls to reflect the reduced price of crude. For these scenarios, the local sales demand for gasoline at the local station would have remained relatively flat. The retailer might have seen sales swing from 1,000 gal/day to 950 gal/day after the increase (again, made up numbers), but not enough swing to impact his pricing choices.

This makes sense when you think about the inelastic demand for gas and the physical problem of storing it. The availability of storage makes gas prices change slowly most of the time. But, if there's a chance of the tanks running dry, prices go sharply up. And if there's a chance of the tanks running out of space, prices go sharply down.

In those cases they shouldn't go up immediately only during refilling an order.

Not the individual gas stations; I mean the storage capacity of the whole system.

Suppliers for lots of things charge whatever people will pay regardless of current market conditions. From time to time I read about lobster surpluses, where prices for distributors plummet and they just can't get rid of them. But when I go to the supermarket the price hasn't budged even $1. The supermarket knows the average consumer isn't aware of the fluctuations in the wholesale lobster market and even if they are, who's going to change supermarkets just to save a few bucks on one item.

Lobsters can be frozen.. gasoline is more elastic b/c it does eventually expire.

I don't think it's reasonable to imply that fuel is more perishable than meat. Crude oil doesn't go bad.

Besides, the [non]-perishability of either doesn't see to really be a factor in either, does it?

Maybe the closest factor for oil is storage, as we saw recently when prices went negative.

Frozen foods have a limited shelf life too.

Another (small) dimension to this: my brother-in-law works for an organization that acts as a thinktank for many/most(all?) credit unions in the US. When we moved to Santa Fe last year, I noted that the credit union I wanted to join (yay! credit unions!) offered an insanely low interest rate for their savings account. So I asked my BiL whether I should feel guilty about using an online "high rate" savings account instead.

He told me that if a CU is offering a very low rate, it essentially means that they don't have much significant lending going on. He said that if things changed, and they start to see real growth in the demand for capital loans, their savings interest rate will pick up. He said I should not worry about it.

Now, this doesn't really address the Fed rate vs. the savings interest rate gap (surely the CU could at least pay something near the Fed rate), but it did expand my understanding of the situation for credit unions, at least.

Customers that jump around for an extra basis point in interest on their $400 account are the worst customers for a bank. There is a sweet point that banks and credit unions try to hit where they aren't competing for those customers but that they're getting enough deposits to operate and grow.

Both my mom and my aunt died a couple of years ago. I had all the paperwork that I needed but it was 2-3 hours for each account that needed to be closed and a new account opened for the estate. I was able to close one of my mom's and that was relatively easy, like 15 minutes.

It did seem incredibly expensive to provide a person to interact with. One of the banks involved was Chase and they did have a video interface where you could interact with a banker somewhere else.

I guess it works out, since the banks had thousands of dollars sitting in the bank paying no interest. And the amounts surged to hundreds of thousands as their houses were sold and before the money was distributed to the heirs.

But dealing with the general public for accounts in the hundreds of dollars has to be a money loser. Except for the overdraft and other fees, of course.

Same goes for gas prices. I heard an earnings call recently for a public company that runs a ton of gas stations. They indicated that their margins on gasoline have gone far far up and offsetted and losses of sales of drink/snacks etc in their stores, because they are quick to raise gas prices when oil prices go up, but very slow to do so when prices go down.

The amount of fascinating economic lessons we've gotten over the past 6 months is amazing. All kinds of cool things I've learned:

Pool companies are backed up 1 year right now with people nesting at home

Whirlpool blew their analysts earnings estimates out of the water on strong appliance sales due to "nesting at home"

Weber grills are on huge back order.

and on and on.

> losses of sales of drink/snacks etc in their stores

As a former gas station owner, let me correct you here. Drinks and snacks, no matter how low the volume have crazy margins, sometimes 100% or more and make up a large fraction of gas station profits. It isn't rare to run the fuel at a loss to sell more ice cream and drinks.

How can a product have > 100% margin? Were you getting paid by the supplier to stock their products?

Uhm, you buy an item for $1, sell it for $3, the margin is 200%, no?

Ugh, of course. I had a total blank on basic maths for a moment.

As typically defined: The margin is 67%. The markup is 200%.

Margin is "profit as percent of revenue". Markup is "profit as percent of COGS".

You are right, I should have used markup, not margin. Apologies.

I was just talking to a friend about that - a lot of 3D printers are sold out. Good webcams are gone. Cheap intex vinyl pools are gone or selling for 5-10x their original price. It really is astounding how quickly things shifted.

The problem is that the banks can borrow so cheaply that they actually don't want to pay their clients the interest rates on their accounts. As it expensive for the bank, and increases the bank's liabilities/risks (money in the books) hence they will lower the rates. Which then hopefully will lower the amounts on the books by people either moving it out of the bank or spend it.

That's what I understood from the bankers when I was working at a bank :) They a had a simple formula representing but can't find my notes now.

I am 'enjoying' interest rates on my bank accounts around the world between -0.5%-1.5%. I really should sort out the negative rent.

But nobody is expecting to be earning a significant return from a retail bank account, are they?

I think if you're disappointed by your checking-account interest rate you probably first need to think about why you're storing your money there.

Personally I couldn’t care less about the interest rates on my bank accounts. The money I have there is money that I intend to use the coming years, e.g. for reoccurring expenses or for expenses related to my house. Any money that I don’t intend to use the coming ~5 years I place into index funds.

There are a lot more people than you think that simply don't invest their money, instead they keep it in savings accounts. My aunt is one of those people. She got a large inheritance and basically kept it in a savings account for 20 years. My mom got the same inheritance and bought investment properties with it and now its worth 10x. I think it comes down to the fact that a lot of people are risk averse or feel that investments are too complicated for them.

Even if you're risk averse, a limited time, guaranteed rate investment available in most banks will give you more than the checking account rate. (as long as you're happy to lock the money for 6+ months)

10x? I'm not familiar with real estate. How does one earn 10x in that time frame. Even with a price to rent ratio of 1 to 15 and assuming housing prices double over that period, you still aren't at 10x, and that doesn't include maintenance, taxes, closing fees, etc.

Leverage. Let's say the inheritance was 50k. You make that a 10% down payment on a 500k house. Assume rent covers your interest on the loan, taxes, etc. 10 years later the house appreciates 100% to 1M. You sell the house.

You just made 500k from 50k.

Did you mean "etc" to include maintenance, principle payments, and transaction costs?

It doesn't sound like you're describing the magic of leverage, but the magic of having an arbitrary amount of cashflow.

Makes me think of https://en.wikipedia.org/wiki/Robert_Kiyosaki and https://en.wikipedia.org/wiki/Trump_University

Instead of just buying an asset and then selling it, you can also buy an asset, use it to make money while you own it, and then also sell it.

Not too hard if you buy California real estate with 10% down in the 80s.

When interest rates are higher you can get a decent return. I remember getting some decent rates from banks in early 2000s. Not amazing but maybe like 4 to 5%, IIRC

edit: I was able to find 4% savings account from Wamu and 5% cd.

But I think the opposite is also true for mortgages. So it's relevant for many people.

At least where I live, they increased the mortgage rate quickly when the government increased the rate, but I still haven't seen much of the decrease. Only way to get it is to threaten to switch or actually switch bank. A passive mortgage lender is getting ripped off.

The worse thing is that the opposite applies for floating credit (loan) rate. They're very quick to increase the rates but very very slow to reduce them. So it's like double profit for them.

The banks cost of money isn't closely tied to the Fed rate. It is more tied to long term investments such as government bonds or t-bills. These have been pretty low and very low recently.

I think a lot of the issue is that the model of banking has changed. Once upon a time, the business model was that the customer deposits savings, then the bank loans out that money, and the interest they collect is the profit.

But with unlimited free money from the fed, why bother? The fact is that they don’t actually want your money any more. It’s just a hassle to keep track of. They get a lot more money by charging overdraft fees than by loaning your money out anyway. So why should they be eager to compete for savings deposits?

From my limited experience, they're good at offering an enticing savings rate but a year or two later will whack it down close to nil. They're playing the same game as utilities and insurance, after a year or two your benefits shrink or your costs go up.

Examples, had a 2% interest rate "ISA"-like account and it went down to 0.01%. Home insurance doubles in 10 years through lack of changing it.

Switching all our services yearly is a time suck and they know it.

Reminds me of gas stations, quick to jack up the prices, slow to reduce them.

If you hold inventory, it’s hard to resist unless market pressure forces different pricing.

Biggest assymetry I noticed yet is that mortgage rates are often fixed no matter what happens to current money lending rate.

I am no financial expert, but I think unpredictable rates hugely favor consumer.

When rates are high and money is in high supply, inflation reduces the actual principal, as nominal amount Stas the same. When rates are low, you can refinance mortgage at current, low rates and reduce interest part of your mortgage.

The US government subsidizes the home mortgage market in the US. I don’t known of any other country offers people 30 year fixed rate mortgages.

Fixed mortgage rates help consumers because they can always refinance down to a lower rate.

My credit union is really good about tracking rates against the greater market. But I only qualified for membership because I taught community college in Orange County, California for two semesters as an adjunct. I live in Chicago now and I have no intention of giving up my account with that credit union.

I am happy to be contradicted by better specialists than me of US banks. But aren’t the vast majority of loans in the US fixed rate with no or little prepayment penalties? If that’s the case the interest rate risk of these banks is not trivial and certainly not a simple pass-through of overnight rates.

The article isn't about loan interest rates but the interest rate banks offer on deposits.

Where do you think the bank gets the money for paying interest on deposits from?

They have sofas in their lobby, and they look under the cushions.

I just checked. US Bank's basic savings account offer 0.01% APY and costs $4/month.

As an aside, if someone is fairly risk averse (i.e. doesn't want to lose more then 10-15% in a crisis like what just happened) and wants to park ~200k, is the best option a high-yield savings account? A CD? I would have normally thought treasuries but obviously interest rates are low.

Depends on if you mean 10-15% real purchasing power or nominal. Most people think of cash as safe as possible but heavy inflation could wipe out 50% real purchasing power in a few years. Nominal? Sure, high yield savings account is safest, 1% currently, and won’t lose any nominal. You could even do a bond or muni bond fund, BND or VTEB, to gain extra after-tax yield ~2% without losing more than 10-15%. But you really want to not lose more than 10-15% real, in which you’d need to think of the money as a portfolio including inflation hedges like TIPS (inflation protected bonds), Stocks, and Gold, albeit in small 5-10% allocations because of their greater risk.

I like BND. Only dropped 8.7% from peak to bottom in march (back up now), it pays out a decent dividend, and it is a vanguard etf and vanguard is awesome in my experience.

The fed lowering interest rates has murdered money market rates (e.g. 0.1% annualised return). Not a financial adviser but I’m currently using a mix of 1% APR HYSA and some bond ETFs (some total bond exposure, then some additional holdings increasing exposure to just US bonds and US municipal bonds).

patio11 tweeted about banks and their opaque conduct re. interest on savings accounts in the past couple of months:

https://twitter.com/patio11/status/1269919425802559488

Banks will pay as little as they can get away with and charge as much as they can get away with.

Only competition stops that being nothing and loads.

There is no “passing on”. There is only what the market forces on a bank to survive.

If you can borrow from your central bank for nothing, why would pay depositors anything? They're not just competing with free, they're unreliable and expensive to manage.

Internet is only a small part of the equation here. Banks are constantly giving back to customers in other ways, such as free checks, ATM fee refunds, and sign-up bonuses.

Wish algorithms decide https://banksdaily.com/central-banks/

Why is it surprising? It applies to housing loans as well. Sometimes unless you threaten the banks that you will switch the bank they won’t reduce it interest rate.

This is the same with gasoline prices too. CA gas prices are still well over $3/gallon despite low crude prices.

That’s just how much refining fuel costs. There is no monopoly of fuel suppliers holding the gas price up, and gas stations make very little money selling gas itself.

Refining isnt actually all that expensive. At least in California, taxes are a higher percentage of total price (18.4c federal + 35c state, per gallon).

50.5 cents of the gas price in California is the state gas tax

For gasoline there are federal, state, and local taxes. Also, each jurisdiction needs gasoline to be made differently than in other areas. Gasoline is a processed product, and it differs from crude.

There's another asymmetry where people like to buy stocks at a low price and sell them at a high price.

Ally bank (an online bank) has very competitive savings rates and great online banking/support.

Just like gas/petrol stations when it comes to oil price changes...

Banks exist to make money. I don't understand how this is surprising to anyone. Downvote me all you want, but it's mind-boggling that a private message board for startups is also full of surprised Pikachu faces any time a company tries to turn a profit.

Why would you ever have a savings account? They’re pointless as they always earn little interest. Much better to invest in an ETF that tracks something like the S&P500 with an average year on year growth of 10%, or if that is too risky invest in a government bond.

I invest in ETFs this 10% yearly grow doesn't happen over a longer term and some years are negative. Overall expect 5%.

But it does though ...

https://www.macrotrends.net/2526/sp-500-historical-annual-re...

> or if that is too risky invest in a government bond.

You can get 1% in a savings account in the US. TBill rates are all less than 0.25%. The latter has tax benefits, but not enough.

One good way to "get a higher return" (for some at least) is to pay down debt. If your mortgage is at 3%, whatever you pay off is "earning" 2ish% after tax. If your margin loan is at 1.5%, anything you pay off earns 1.5% (because the interest isn't deductible.)

interests are not linear, also most credits and mortgages will have a commission when you pay down a percentage of it, at least in Europe

Mortgages might be a poor example because of prepayment penalties, the ability for a lender to choose to apply an excess payment to future interest payments instead of the current principal, and all sorts of things (each situation is different, you just need to do the math).

Something like a credit card or student loan in places where those are common might be better targets. They usually have ordinary compounding interest, and the delta in your net worth (assuming no other effects like taxes) between investing P dollars at an interest rate R for time T is identical to paying off P dollars of a debt at an interest rate R and waiting till time T has elapsed.

One of the things I do is use interest free credit cards to pay for my usual expenses such as food and fuel. That frees up cash. I then use that cash to invest in ETFs. When the interest free period on the credit card expires I either sell the ETFs to pay it off or use an interest free balance transfer card to carry the debt. In that case, as long as the transfer fee is below your rate of return + inflation you profit.

You then pocket the net return on investment from the ETFs. The risk mitigation is that the interest free period is usually over 2 years, enough time for a stock market recovery should a downturn happen and you fail to time to market and sell on a high.

Because it makes since to keep an emergency fund, even a small amount, say 10-15k, will earn 125-150 (obviously more or less depending on rate) in a savings account is better than roughly 0 in a checking account.

What I do is use credit cards to cover emergency expenses and then sell some of my bond ETFs to pay the loan after a few days.

That way I get to earn 2/3% interest and have liquid access to my money.

The ease with which money can be moved in and out of money market funds mean that it’s probably unlikely that anyone has a long term balance of over $2000 or so in a savings account. At those levels the difference in interest rates is dwarfed by fees etc.

Same with gas prices

It's almost like banking is a business.

Just like gas station prices.

Title sounds like the Fed.

Same with gas prices.

Am curious how Compound, dX/dY, Nexo services are able to advertise such high interest rates on digital assets. Some as high as 10% APR accrued on a daily basis.

They're all backed by algorithmic crypto trading, and thus are operating outside the banking system discussed in the article.

For one, because the underlying asset they are paying interest in can lose value, or even go to zero. Compound, for example, has lost 50% of its value in just a month.

The crypto space is also, to say the least, extremely risky, and full of every variety of untrustworthy, unscrupulous character.

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