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Comment by zie | Hacker News Reader

They are not the only ones doing long term fixed income like this, I wonder what's with the sudden interest in everyone jumping on offering stuff like this.

The duration risk is ridiculously high though. Personally, I'd want 15-20% yield for that sort of risk.

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It’s a CD, so the only risk is the interest penalty for early termination. There’s no principal risk for $250-500k.

My dad saved like this for my siblings and I with savings bonds.

There is duration risk, i.e. interest rates will certainly change over the next 100 years. Will they go up or down, yes. Will they stay on average higher than this CD or on avg lower? shrugs nobody knows. Hence duration risk.

You are talking about credit risk, i.e. loss of principal. Since they are FDIC insured, you are correct there is no principal risk, if the bank folds, you will either get your principal back or the new owners will continue to honour the CD.

If the circumstances warrant, you just exit.

Assuming you can swallow the fee(s). I haven't looked at the details, but usually exit fees get bad unless you hold close to duration, which in this case would be most of your entire life.

If they are doing this without exit fees, I'd be VERY surprised.

The early exit penalty is the last 10 years of interest.

That's definitely noticeable.

There's a lot of anticipation of huge economic gains to come, from 2024. I wouldn't be surprised if banks are being pitched to people of certain circles as the new business real estate...

If they design their program right, there's likely very little downside risk and huge risk of missing out on all that capital inflow.

Plus I guess, read the fine print...

They know there has been an inflection point and rates will be in the double digits in a decade. They get your cash at only 4.75% and will be able to make a massive low risk return by investing in treasuries or lending the money.

How do they and you know this, when even the Federal Reserve doesn't have a clue?

Also, 100 yrs and a decade are ridiculously different time frames. So even if they and you know this, it hardly matters. Duration risk is real though.

> How do they and you know this, when even the Federal Reserve doesn't have a clue?

I think the Fed does know this. I’m not going to go into the nuts and bolts of my hypothesis, but the basis is that continually dropping rates for 40 years has been equivalent to putting the economy on stimulants and it started causing things to break starting in 2000 and continuing to today. It has forced an inflection point in the Fed’s policy, and rates will likely trend upward for at least the next few decades to stabilize things. If they decide to drop back to zero, expect even more fundamental breakage including further spiraling inflation as well as social unrest due to a larger wealth gap and further political polarization. At the moment, Jerome Powell is truly the most powerful man in the world.

The fed has always had this power, it's why there are a group of people involved and not just Jerome Powell.

I agree the Fed tries to know this, but I disagree that the Fed actually knows this, because they don't. If they did, they could have fixed our inflation mess earlier, but they didn't.

If they're unsuccessful they can declare bankruptcy and let the FDIC fund cover the gap. If they're successful they get big $$$!

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