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Comment by Rastonbury | Hacker News Reader

Clickbait title, the fed rate went from 0.25% to 0.5% hardly soaring. Savings accounts previously paid like 0.04% according to article, that's because they need margin and they can keep them low cuz people won't swap banks for half a percent (not that it'll get there anytime soon)

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> Clickbait title

It's a (granted, well deserved) PR piece for Goldman Sachs. Their "popular consumer bank Marcus" is called out early for "offering individuals a yield in excess of 2%" in 2019. Its 50 bps is then compared to "Bank of America Corp.’s 0.04% or JPMorgan Chase & Co.’s 0.02%."

Would you say this speaks to the stickiness of savings accounts, in that there is no deposit account ACATS equivalent and folks won’t go through the effort of moving institutions to maximize savings returns?

> there is no deposit account ACATS equivalent

There sort of is: wires and EFTs.

The simple answer may be, for many savers, the spread is irrelevant. If you're saving for a home over a year [1], the difference between earning zero and 80 bps on e.g. $100,000 (quarter of the median home sales price [2]) is no more than $800. If these are your only savings, having them at an institution you know and trust may be worth sacrificing $800 over. (I'd argue it isn't. But I can imagine someone getting stressed over it.)

If you're saving for the longer term, e.g. in a rainy-day fund or for retirement or broadly for asset accumulation, you're thinking like an investor and out of the domain of basis-point yields.

[1] More realistically, if you're a median household earning $67,500 [a] saving 10% a year for a home, deposited monthly, one would have $100,027 after 168 months (~14 years) at 0.8% and $100,125 after 178 months (~15 years) at 0%. That's a difference. But not a practically meaningful one.

[a] https://fred.stlouisfed.org/series/MEHOINUSA646N

[2] https://fred.stlouisfed.org/series/MSPUS

Appreciate the reply, thanks for sharing the domain expertise.

Right now I-bonds are a pretty compelling down payment savings vehicle, at least for your first ~$15k/year, if your timeline is more than one year out.

If you have a tax refund for that last 5k right?

Regardless it's per individual. So if married everyone make sure to double up!

Trusts, LLC’s, and other businesses can also open up “entity accounts” at TreasuryDirect under their EIN’s, for buying up to $10k of I Bonds per year, or other types of treasuries.

And those of us with kids under eighteen years old can open up “linked” minor sub-accounts in their names, which are linked to the parent’s primary account at TreasuryDirect but which can buy up to $10k of I Bonds per year in each child’s name.

At some point, spinning up some new LLC’s and/or offspring just to get more access may become advantageous.

I bonds for children are considered irrevocable gifts, and the proceeds must be used for the benefit of the child (to do otherwise is considered tax fraud). Important context to know before purchasing.

So the same rules as UTMA accounts, yes? Except the kids’ UTMA accounts at the local bank get essentially 0% interest rates (or slightly more with long-term CD’s), while TreasuryDirect I Bonds get them over 7%.

And perhaps this will also provide an incentive for the kids to not blow all their money so easily some day, when they’re of age to receive it, since the bonds if unsold will keep accumulating interest for 30 years (by which point the kids will be middle-aged and hopefully more mature), the clunky TreasuryDirect web interface makes it hard for them to sell and transfer proceeds anyway, and none of it is linked to a debit card like an UTMA bank account or UTMA brokerage account. Sounds like a pretty good piggy bank.

All true. My comment was because some parents believe they can use their kids’ SSN as a strawman to buy more I bonds, not a bonafide gift to the minor.

Yes, though you can arbitrarily overpay to ensure you have a $5k refund.

Also note that the $5k in paper I-bonds is per return, not per individual. So Married Filing Joint only gets the $5k in paper I-bonds.

I'm told married couples can buy each other I-bonds as gifts, bringing the total up to $45k per couple. But I haven't tried it myself.

Yes, it may very well be an advert for Marcus. A product marketing manager's next steps in the AIDA sales funnel would be:

A - Attention: This piece highlights the context and problem at hand to the general population. Priming them with major player's brands is key to awareness.

I - Interest: Will follow up with a piece titled "Marcus considers rising interest rates amid inflation" comparing the highest interest rates with competitors. This anticipation and speculation creates further interest.

D - Desire: Finalize with "Marcus decides to raise interest rates to 1.3%" higher than other competitors to "stay competitive".

A - Action: Announce a "limited time offer" to further entice people to open an account - ex: $100 cash for new accounts.

https://en.wikipedia.org/wiki/AIDA_(marketing)

Marcus' savings rate shifted on friday from 0.5% oto 0.6%.

For most of the last decade, IRS statutory rate for underpayment/overpayment of tax was 3%, an historically low number. It briefly spiked up to 6% in 2019, then fell back to 3% for a while, but last quarter went back up to 4%, with more increases expected.[0]

This rate applies to anyone who takes "too long" to claim a refund or pay a tax liability, so it is basically a zero-risk rate that applies to everyone regardless of their credit status.

[0]https://www.dol.gov/agencies/ebsa/employers-and-advisers/pla...

>This rate applies to anyone who takes "too long" to claim a refund or pay a tax liability, so it is basically a zero-risk rate that applies to everyone regardless of their credit status.

Yeah but you're severely limited in how much money you can "save" in this account. Similarly, it's like arguing that rates are super high because you can get I-bonds at 7.12%, but neglecting to mention the most you can buy per year is 10k.

I wasn't really suggesting it as a savings vehicle, rather I was contrasting how a neutral government rate is going up significantly while banks are still stubbornly sticking to their artificially low savings rates.

The fixed rate of those bonds is zero [1], that’s important to remember. The inflation adjustment they pay means your cash invested won’t lose value, not that you’re generating real return.

[1] https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

It’s not a zero-risk rate, it’s just a “reasonable rate which is painful enough to make you prefer paying than not paying while at the same time not seeming too high as to be abusive”. Why are late fees $350, $450 or whatever? It’s not a real cost of anything. It’s just a reasonable fee.

The yield on the 1 year t-bill has gone from 0% to 2%

That’s where I’ll be keeping cash I’d otherwise keep at the bank, for now.

except rates are gonna keep going up, meaning your principle would decline in value.

If you're keeping it to term, the only issue is the 1 year of opportunity cost - you get your full principal back at the end. But if your alternative was to keep it in a savings account at a bank, there's no opportunity cost.

Grabbing some I Bonds could be worth it.

I'm already maxed out at $10,000 for this year.

Got kids? Look up “minor” accounts.

Got an LLC or a family trust of some sort? Look up “entity” accounts.

So I can purchase bonds as an individual and also as the owner of my LLC?

Yes! I did this last year and plan to do it again this year.

I have a one-year-old single-member LLC for my plant h̶o̶b̶b̶y̶ very small business. I grow and sell fancy houseplants, unusual chili peppers, hopefully some mostly-dahlia bouquets later this summer, etc. I mainly sell on Etsy and eBay. Usually, forming and keeping up an LLC would probably be overkill for a little business like this, but starting in 2021, the state of California waived their usually ridiculous LLC formation fees and annual LLC fees, to help people start new small businesses after the pandemic. So I jumped on the wagon and put my h̶o̶b̶b̶y̶ business into a real LLC.

So now my husband and I have a bunch of I Bonds in our names/SSNs at TreasuryDirect, and each of our kids has a "minor" account linked to our account there, and they each have I Bonds in their names/SSNs -- and my little houseplant LLC has its own "entity" account at TreasuryDirect, based on its EIN, with me as the authorized representative who can buy and sell on behalf of the LLC. And so the LLC owns I Bonds in its own name, even though this is a single-member LLC, just me. It doesn't even merit getting its own tax return, it just reports its (my) teensy profits on my personal Schedule C, but the US Treasury treats it as a real separate entity from me even if the IRS does not.

Heck, I think the LLC as an entity now owns slightly more in I Bonds than it made in profit last year.

Now, if by some miracle the state of California should decide to continue its temporary pandemic policy to not charge residents to form and maintain LLC's, one could hypothetically set up many such new single-member LLCs, each with its own EIN of course, and each LLC could then set up its own TreasuryDirect account, and each account could buy I Bonds or other Treasuries...

Also noteworthy: you don't get an annual 1099 from TreasuryDirect unless you sell the bonds that calendar year. The interest only formally accrues to you upon a sale. And they're federally tax-free anyway.

This is amazing, I never knew. Thank you!

mortgage rates have doubled in the last two months, the 20 year has doubled in the last two months, rhe policy rate had doubled in the last two months (admittedly a small nomination amount) and is about to double again in a week.

so although overall rates are still low, I think it's pretty fair to say they have exploded

“Doubled” from rock bottom. The government flooded the zone with cash to keep the economy alive. Hell, I’m paying a 2.25% interest rate on my home.

People are running around like chickens about inflation this and inflation that. The only meaningful metric is gas prices.

Have you gone grocery shopping lately?

For a guy who bought a house with a loan at 2.25%, gas prices might be the only meaningful metric.

Not everybody is as lucky as you, bud. People are watching the value of their savings evaporate before their very eyes as they try to put together down payments for a home or find a minivan for their growing family.

It’s a real problem, and if you want to see what a world where it doesn’t get fixed quickly looks like, go read the book “When Money Dies.” Pretending it doesn’t exist won’t fix it either.

I’m not saying it’s not a real problem. It’s a symptom of long standing issues that have been kicked down the road for my lifetime.

I grew up in a farm town where 30 farms circa 1990 are down to 4, and the factory in the next town employs 80% fewer people. The nations strategy for dealing with this has been to suppress the business cycle with endless cheap cash.

IMO, it won’t get better until it gets worse.

> hardly soaring

It's double the previous rate.

I don't understand why central banks always use fixed increment sizes.

Maybe for the same reason why gasoline in U.S. is usually priced in increments of $0.10 as the performance rating goes up (although that seems to be less of a rigid rule lately where I live)?

Or maybe for ease of predictability? After all it is much easier to make a binary choice between two numbers with a fixed interval between them, than to choose an intermediate value to the Nth degree.

They can use hyperbolic sized increments with the same predictability they get on constant sizes.

Predictability, they don't want to introduce too much volatility.

Doubling equals soaring in anything related to economics or finance.

Nah man 0.001% to 0.002% really? Would anyone describe the yield of t-bonds as astronomical at 1.44%? Nobody would even care if banks passed on fed rate to consumers, imagine getting the joy of getting 0.5% up from 0.25%

I wonder what happens when rates return to more historical territory?

Perhaps we’ll adopt shrimp marketing. “Mortgage rates are now jumbo collassal!”

> the fed rate went from 0.25% to 0.5% hardly soaring

That's a 100% rise in interest rates, which many people would call "soaring".

It is to people who are unaware of the context, which BBG is using to try to sensationalise. The same rate was 2.25% in 2018, and there may be up to 6 hikes of 25bps each this year alone. The fed rate is going to "soar", it just hasn't yet

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