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Comment by WheelsAtLarge | Hacker News Reader

This is a nice alternative to an annuity. It's actually better since you will get your principle back. You can gift it to someone or use it as a way to finance you retirement and be sure of the regular income for a very long time. You can even put it in your Will.

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What good is it to get the principal back in 100 years ? If inflation stays between 2 and 3%, the principal would only be worth between 5 and 13% of what it is today. If inflation is between 4 and 5%, principal in 100 years would be worth between 0.7and 2% of todays value.

People buy annuities for the guaranteed income. That's an existing product people want. Annuities get ~5% interest, and when you die you usually forfeit the principal. It's also not FDIC insured.

This CD is 4.75%, FDIC insured, and you get the principal back. It's superior to an annuity for a good chunk of people. Sure the principal degrades in post-inflation buying power (excluding the interest payments), but that's not the point because it's competing with $0.

> but that's not the point because it's competing with $0.

If the option is "Buy the CD or do nothing" though, correct?

I believe it's [buy this CD, buy an annuity]

Can you withdraw the interest penalty free before the term is up?

The interest can either add to the principal or be a regular distribution.

With global population stagnating in the coming decades I wouldn't bet on inflation staying the same. I think it's more likely that we are headed into a deflationary crisis worse than 1930 Germany.

Have you seen UN projections about global population increasing?

Practically all models estimate peak population to happen somewhen in the second half of the 21. century. And most countries outside of Africa are likely to go the way of Japan far sooner.

Japan's birthrate (~1.3) is about the same or only slightly worse than most Western nations. The US is about 1.6.

The one that's really eye-opening is South Korea (~0.8).

Population increases in India and Africa have no impact on the economic catastrophes pending in the Western world and Asia.

Population increases in immigrant source countries have no impact on the economies of the largest immigrant destination countries?

Population stagnating is what keeps everyone in my country employed even in a recession. Take a look at India or the Philippines: everyone is replaceable and life is not a scarce resource.

Companies hate it though. They want cheap workers instead of competing for employees.

Oh, I agree. There's many good reasons to celebrate population stagnating: economic, social,ecological. But it's not going to be a painless transition from the last 2-300 years of a system predicated on growth.

FDIC insurance would be the real gain here. That’d cover accrued interest as well.

4.75% perpetual FDIC insured CD vs 30 year treasuries paying about 3.8% right now is interesting.

A number of very large brokerages have short-term largely treasury accounts returning in the 4-5% range right now. I wouldn't toss all my money there but it seems like a pretty good place to park cash for the next year or two until rates drop.

There's a 10 year interest penalty for early withdrawal.

That doesn't seem like a good deal at all then. The brokerage accounts are basically "like cash" sweep accounts.

The deal is in locking in the interest rate forever.

Of course, this is only a great deal if the money is taxed at a very low rate and your horizon is very, very long.

Short term treasuries are paying more than that. 6 month is at about 5.3% and that’s State tax free.

Bond yields can only be compared apples to apples at similar durations and at similar credit risks (which FDIC insurance normalizes).

What's interesting is that until very recently, the interest rate on treasury bills were higher for shorter term ones versus longer term. That is, the 4 week ones had a higher interest rate compared to the 26 week ones. In fact, the daily treasury bill interest rate for May 26, 2023 was

    5.78% for 4 weeks
    5.30% for 8 weeks
    5.16% for 13 weeks
    5.28% for 17 weeks
    5.18% for 26 weeks
    4.98% for 52 weeks

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

This is the famous inverted curve. It’s generally been a predictor of recession. But this time it’s been inverted for over a year with no recession (yet).

One of the many baffling parts of the economy currently.

The yield curve inversion to recession lag is typically around 18 months (with big error bars), so it’s not super notable yet.

Locking yourself into an interest rate for a long time period right now is like buying the stock market at the top. Get a high interest savings account with Wealthfront at 4.55%, for example. You’ll be glad you did when rates hit double digits over the next decade. Rates aren’t going back to zero ever.

interest rates have been falling for over 700 years [1]. I wouldn't bet against that over a single unprecedented year

1. https://www.bankofengland.co.uk/working-paper/2020/eight-cen...

It is more than a single year and this happened during the 1970’s and 1980’s stagflation era.

Of course worse inflationary crises have happened in Western history and while they returned on a large enough time scale that really didn’t matter all to much for all the poor citizens for whom their hard earned wealth was nukes from orbit.

Isn't this cherry picking data?

Your time machine is as good as mine. Rates can keep going up and up and up like the 70's, or they could crash back down when AI and robots put us all out of jobs, or the dollar could become worthless along with everything else after a nuclear holocaust.

You can do both to hedge that interest rate risk. Some fixed, some floating. No one knows where rates are headed and savings account providers can change rates at any time.

It’s capped at 150,000 so not much in terms of income. Article doesn’t specify if this cap is per account or individual

Probably best not to exceed FDIC limits for a novel bank product.

A CD isn't novel.

A 100 year CD is, from the first new mutual bank in the last fifty years.

Doing the same thing but longer isn't novel.

Try telling that to the world's oldest person!

FDIC insurance is by account, not individual.

My point was that this is somewhat of new and exotic product, and interested parties should be mindful to ensure their exposure does not exceed insurance limits. While you might find a way to buy more of this CD than the bank permits through their limits, that doesn't necessarily mean you should.

https://www.fdic.gov/resources/deposit-insurance/brochures/d...

> The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

> The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.

> All deposits that an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.

You can open multiple accounts, most banks let you. There are ways to increase the insurance limit. Joint accounts are doubled and there are other ways to increase the total to more. But ya, ultimately it's not a whole lot more.

On the other side, how many people have $150,000 to lock up for a century. Not many...

> how many people have $150,000 to lock up for a century

Realistically 100yr and "the rest of their life" are synonymous, and plenty of people. Sure I don't have 150k in cash just hanging out in my checking account, but if I thought this would be a critical supplement to my retirement, then I could scrape 150k. My parents who are near retirement age certainly have 150k they could put here if they were so inspired.

How does inheritance tax treat this annuity? Are you landing your loved ones with a tax bill without liquid assets to pay it off.

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