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Comment by spullara | Hacker News Reader

I think it is a terrible that most retail bankers are getting basically no interest in their bank account while the banks are earning nearly 5%. If you are too big to fail you should also have a minimum interest rate for deposits that tracks the federal reserve rate. Specifically, this should be regulated more tightly:

    Bank of America Advantage Savings†
    Standard Pricing
    Account Balance Rate % APY %
    Less than $2,500 0.01% 0.01%
    $2,500 and over 0.01% 0.01%

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Whenever we stimulate the economy, economists trip over each other to explain how giving money to poor people has high monetary velocity and causes maximum inflation, so instead we should give the stimulus to rich people.

When we want to rein in inflation by paying people to save, I hear a thundering silence on the prospect of preferentially tackling the highest velocity money to obtain the most inflation control per dollar. Instead, we let banks get away with this (see parent post) and focus on paying rich people to save, when by the previous logic we ought to be doing the exact opposite.

Hmmmmmm. It almost feels like the driving force here isn't good stewardship but rather the self-interest of well-heeled economic forces.

It is hard to come up with a setup where paying poor people takes that money to savings (i.e., gets it out of the circulation). I am not saying paying poor folks is always a bad idea, I just fail to see a single practical approach where this will lead to a reduction in M2. My 2c.

Encouraging banks to not stiff uninformed retail would be a good start (see: grandparent comment).

Capped personal savings instruments would be the next step (see: I-Bonds).

You missed the whole idea "paying poor people to save"

If you, say, give people $100 in a year if they keep $1000 on deposit for the whole year, you'd be paying them to save. Sure, the poorer people are going to go out and spend that $100 when it comes in. And if there's no new incentive to keep the $1000 in savings, they may likely spend that too. And you'd need to limit it to one offer per natural person, etc, or people with access to lots of money would endeavor to make many $1000 accounts to get the 2x market rate interest I made up.

Maybe $1000 is too much to ask poor people for, but you could scale it down. If you do it right, you get both the policy goal of reducing velocity of money, because you're getting people to save rather than spend some money, and you also get the typical policy goal of distributing money to the poor because even if everyone can get this $100, it's more impactful to the poorer.

Or you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners. Might be more 'exciting' for some people and encourage more savings that way.

> you could do a savings account linked to a lottery. Every $1 in savings up to $X gets you a ticket, if the bank earns about the federal funds rate on the deposit, give half to the individual depositors, and pool the other half to share among the lottery winners

This is a good idea. Could it be implemented under current regulation as a neobank?

There’s a governmental bank in the UK that runs a lottery: https://www.nsandi.com/products/premium-bonds

They've been doing similar things at Wisconsin credit unions for several years:

https://www.theleague.coop/solutions/savers-sweepstakes

And here's a hip app based version that isn't a bank, but keeps your funds at a bank:

https://www.withyotta.com/

Not sure about the terms or pay ratios on either of these, but I didn't come up with the idea, and I kind of find it distasteful, but it would seem to hit the right mix of meeting policy goals and attracting the desired clientele, so I restated it.

It might be worth trying, but you are describing CDs with souped up interest rates.

Many poor folks carry credit card balances at 15+% interest. Paying those off would be much more efficient for them that those CDs. Unfortunately if they manage to pay their credit cards they soon start racking them up again.

This elides a more fundamental problem. For a lot of middle class earners, it's difficult to keep non-trivial amounts of cash on hand. So there's no cash to cover the cost of a broken appliance or repair on a car. A credit card is many people's only accessible $1k for some emergency bill.

It's not that most people are maxing out credit cards on fur coats and caviar, they're paying for necessary and often unplanned expenses. They rack up credit card charges because as soon as they pay off one expense they get hit with another. This is especially true for people stuck with 15% interest rates.

they're poor. this means they, and everyone around them don't have enough money. What's the point of saving into a rainy day fund? to have money when it's a rainy day. Except when you're poor, it's always raining. car needs gas, then it needs work before it'll run, or it needs a new windshield, or car insurance. Dog needs to go see the doctor. or their friends have problems and need money to pay their bills. what are you trying to get them to save for, when the problem simply is they don't have enough of it?

> Whenever we stimulate the economy, economists trip over each other to explain how giving money to poor people has high monetary velocity and causes maximum inflation, so instead we should give the stimulus to rich people

This is the opposite of the mainstream economic consensus. The point of stimulus is to stimulate. Velocity makes fiscal stimulus more efficient. Even the Fed, in the depths of crises, pleads for fiscal stimulus because of its power and breadth relative to monetary methods.

I'm responding to the subset of arguments I see in the media. Concerns about fiscal stimulus get mega-boosted while concerns about asset stimulus get buried. It makes sense that this happens in the media layer, not the academic layer. Apologies for poorly targeting my vitriol.

No worries! Where this comes up, with a veneer of legitimacy, is when non-stimulus spending or taxation is contemplated. Hopefully the intragenerational contrast of 2008 and 2020 drives home the point that massive fiscal support together with broad-based monetary support is the way to drive a V-shaped recovery.

They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same. BofA has the highest losses[0] iirc, out of all the banks, with their long term treasury holdings.

Edit: linking article (I found it in a spreadsheet passed around Twitter at the time)

[0] https://seekingalpha.com/article/4586797-list-of-banks-paper...

> They can only offer that because their long term 10Y, 30Y treasuries bought back during ZIRP yield around the same.

I don’t think this explanation is plausible.

10-30 year bonds bought during 2020-2022 did not offer 5% yields. They were below 2.5% (30yr) and below 2% (10yr). Hence the “Zero” in ZIRP.

Edit: I read the comment wrong but it’s still nonsensical the other way. ZIRP era bonds are already worth less. Banks can offer much closer to the ~5% safe rate than most are. Depositors are just largely insensitive to rates. The concept is called “deposit beta.”

Why would they offer 5%? Deposits effectively form a credit spread between the risk free rate (treasury bond) and what the bank pays depositors. Each additional basis point is netted to the bank as profit no? For example, the yield spread between a 2Y treasury bond w/ a coupon @ 4.25% and a savings acct APY @ 0.01% would be 4.24%.

Competition with other banks (as well as non bank places to hold money)

I'm not suggesting banks should offer depositors 5%. Yes, banks love Net Interest Margin.

Banks don't mark these bonds to market so the fact that the older bonds have lower present value and higher yield (although still much lower than 5% on long bonds as a result of yield curve inversion) is not relevant.

These banks cannot afford to pay close to the Fed overnight rate.

Not too long ago someone tried to charter a bank that just took deposits and placed them in the Fed overnight, but the charter wasn't approved because the bank wouldn't perform the economic role expected of a bank, which is to make loans that stimulate small business.

I have an eTrade savings account making 3.75% (I know there are better out there now).

But they've emailed to actively solicit me to move money from other banks into my eTrade savings.

Sounds like Bank of America (and Wells Fargo, etc.) are going to see cash moving out of their banks if they keep up the BS low-interest rates.

We seem to have this bifurcation between banks and brokerages chasing people who want their "cash" to earn a reasonable return given current interest rates and banks that are fine with basically paying nothing to all the people just leaving in money by default at near-zero returns.

I've kept my current bank for various reasons but I'm much more aware of sweeping excess cash into my brokerage account.

There are a ton of banks offering 4%+. That people do not want to do the 5min of work of signing up for an account online is their choice.

https://www.investopedia.com/best-high-yield-savings-account...

There are literally two obscure banks at that link offering savings accounts over 4. I would not call that “tons.” There are a ton offering over 3, sure. Or over 4 if you lock it up in a CD for a few months. Money markets and T-bills are yielding in the 4.7 range. Some <12 month CDs quote 5% or better.

You stopped at the ads. Scroll down and there’s a text based list with many more including 3 banks paying 5.00% or better.

It is an ad laden link. Here is a better one:

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

CIT savings connect is 4.5% with no BS, and it is not obscure.

https://www.cit.com/cit-bank/bank/savings/savings-connect-ac...

Quite a few of the Doctor of Credit links are MM, not Savings, for what that's worth. Several savings offerings above 4% but I would argue mostly at small banks you've never heard of. Similarly, I've never heard of CIT Bank -- they appear to be a small regional bank in the bay area.

CIT bank is part of First Citizens, which is a decent size bank company ($14B market cap, in top 20 US banks, $5.5B revenue, $1B net income):

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

Either way, they are FDIC insured, so as long as the website experience to transfer money in and out is good, it should not be a problem.

https://www.forbes.com/sites/hanktucker/2023/03/27/svbs-new-...

There is no reliable process for anyone to work out what a proper rate of interest should be. The best policy is to break banks that are "too big to fail" up until they aren't that big any more. And then stop giving them free money.

Pooling huge amounts of resources under the control of people who don't know how to manage it is pure waste, for no good reason. Giving them money on autopilot is even worse. And the whole idea of the federal reserve setting interest rates is bizarre, why is this market of all markets is the one where people want to try central planning? It is the perfect time to try a free market based approach. The US has been fighting the market on the price of money for decades and it is just putting them in a worse and worse spot.

Was the fall of the Soviet Union not enough to convince people that economic central planning is a mistake? What on earth will it take.

It seems like that is the retail bankers' choice to take a low rate. Viobank money market has 4.77% interest currently.

Wealth front cash accounts net up to 4.8%.

Currently, cash accounts get 4.30%[0]

[0] https://www.wealthfront.com/blog/why-is-wealthfront-cash-acc...

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