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Almost Zero: Why You’re Still Not Making Much On Your Bank Account
Currently, new issue zero coupon T-bills are expected to yield 1.69% for three months, 1.85% for six month. That's within a few basis points of what banks are offering. It may be worth giving up a few months liquidity, especially in states with high income taxes. T-bills are state tax-exempt. That adds about 0.09% to their effective yield if you're in a 5% tax state, and 0.19% or more if you're in a state like California.
For anyone obsessed about an impending financial apocalypse (though if you are, why are you trusting government dollars?), note that T-bills are backed by the full faith and credit of the US government. Bank accounts are "only" insured by the FDIC, which carries just the "sense of Congress" that it's backed the full faith and credit of the government. And a bank's more likely to fail than the US government, even if it is insured.
Ease of purchase may be a tossup. Brokerages may sell new issue T-bills with no fee, though you still have to place the order. (They may offer a service to automatically roll over the T-bill, similar to banks rolling over CDs.) Accessing cash in an online savings account requires you to click on a few buttons as well to transfer the cash to your checking account. But you could wind up chasing rates from bank to bank to maintain competitive returns.
These days, prime MMF yields at places like Vanguard and Fidelity are also in the same ballpark. The plus is a bit more convenience, especially at Fidelity. There, if you need more cash (for withdrawals or transactions) than you have in your "core" account, Fidelity automatically taps your prime MMF. You don't have to manually transfer the money out (though you do have to manually transfer money in). The minus is no insurance, and potential freezes/redemption fees if their liquidity level drops too low.
Online banks are finally getting competition, though obviously not from TBTF banks.
If the U.S. government collapses, everything collapses. The entirety of capital markets is built upon the so-called "risk-free rate" from T-Bills to the riskiest emerging market stocks. The only thing that would do well in such a scenario is perhaps gold.
Navy Federal: 7 year CD offers 2.65%. ...Just thought I'd mention it, for comparison.
FWIW, Navy Fed has relaxed its familial membership requirements a bit. Now, you just need to be related (up to grandparents, down to grandchildren) to someone who at some time was affiliated with the military. Even if that person is deceased and never joined the CU (or Navy).
They're currently offering a 32 month IRA CD at 2.75% APY. If I recall correctly, their last special a few months ago was an 11 month CD yielding 2%. Not quite sure about either of those figures, though. A place worth watching for specials.
Pentagon Federal Credit Union TERM DIVIDEND RATES APY 6 Month 1.65% 1.65%** 12 Month 2.05% 2.07% 15 Month 2.10% 2.12% 18 Month 2.20% 2.22% 2 Year 2.30% 2.33% 3 Year 2.35% 2.38% 4 Year 2.40% 2.43% 5 Year 2.65% 2.68% 7 Year 2.70% 2.73% $1000 minimum but early withdrawal penalties are not as nice as they once were. I think you can join with just a small donation to their military charity if you aren't a fed/military.
>> They have been held artificially low for too long.
This 'been held' is a bogus zombie idea that will not die for some reason. What do you think the natural interest rate should be? Or what it would or should rise to? Remember that 'natural' is the rate at which the economy is neither depressed / deflating nor overheated / inflating. So what would / should it be if 'unheld'?
The neutral (or natural) rate of interest is the rate at which real GDP is growing at its trend rate, and inflation is stable. It is attributed to Swedish economist Knut Wicksell, and forms an important part of the Austrian theory of the business cycle.
The neutral rate provides an important benchmark for policymakers to compare with the market rate. When interest rates are neutral the economy is on a sustainable path, and it is deviations from neutrality that cause booms and busts. For example if the market rate is pushed artificially below the neutral rate (for example through monetary expansion) then people receive a false signal to invest in more interest-sensitive projects. It is by separating interest rates from their market clearing level that central banks have the potential to create monetary instability.
Because the neutral rate is a hypothetical construct we cannot observe it. Economists tend to believe that it is around 5 per cent ....
"Elderly people who saved all their live... were punished for their habits of savings."
@Maurice: I have to agree with you on this point. Those people were thrown to the wolves in the interest of saving the overall economy. Absolutely not fair.
Comments
For anyone obsessed about an impending financial apocalypse (though if you are, why are you trusting government dollars?), note that T-bills are backed by the full faith and credit of the US government. Bank accounts are "only" insured by the FDIC, which carries just the "sense of Congress" that it's backed the full faith and credit of the government. And a bank's more likely to fail than the US government, even if it is insured.
Ease of purchase may be a tossup. Brokerages may sell new issue T-bills with no fee, though you still have to place the order. (They may offer a service to automatically roll over the T-bill, similar to banks rolling over CDs.) Accessing cash in an online savings account requires you to click on a few buttons as well to transfer the cash to your checking account. But you could wind up chasing rates from bank to bank to maintain competitive returns.
These days, prime MMF yields at places like Vanguard and Fidelity are also in the same ballpark. The plus is a bit more convenience, especially at Fidelity. There, if you need more cash (for withdrawals or transactions) than you have in your "core" account, Fidelity automatically taps your prime MMF. You don't have to manually transfer the money out (though you do have to manually transfer money in). The minus is no insurance, and potential freezes/redemption fees if their liquidity level drops too low.
Online banks are finally getting competition, though obviously not from TBTF banks.
• My vote for question of the week.
the "sense of Congress"
• My vote for oxymoron of the week.
@msf- Congratulations! A doubleheader!!
https://www.navyfederal.org/products-services/checking-savings/certificates-rates.php
Money Market accounts are tiered.
($2,500 minimum.)
https://www.navyfederal.org/products-services/checking-savings/money-market.php
...Just thought I'd mention it, for comparison.
https://www.depositaccounts.com/blog/2017/02/military-veterans-family-members-eligible-join-navy-fed.html
They're currently offering a 32 month IRA CD at 2.75% APY. If I recall correctly, their last special a few months ago was an 11 month CD yielding 2%. Not quite sure about either of those figures, though. A place worth watching for specials.
TERM DIVIDEND RATES APY
6 Month 1.65% 1.65%**
12 Month 2.05% 2.07%
15 Month 2.10% 2.12%
18 Month 2.20% 2.22%
2 Year 2.30% 2.33%
3 Year 2.35% 2.38%
4 Year 2.40% 2.43%
5 Year 2.65% 2.68%
7 Year 2.70% 2.73%
$1000 minimum but early withdrawal penalties are not as nice as they once were. I think you can join with just a small donation to their military charity if you aren't a fed/military.
This 'been held' is a bogus zombie idea that will not die for some reason. What do you think the natural interest rate should be? Or what it would or should rise to? Remember that 'natural' is the rate at which the economy is neither depressed / deflating nor overheated / inflating. So what would / should it be if 'unheld'?
I'm going with an interest rate of 3% range (being neutral) as this is a number I have heard spoken by others.
Old_Skeet
one recent writeup
The neutral (or natural) rate of interest is the rate at which real GDP is growing at its trend rate, and inflation is stable. It is attributed to Swedish economist Knut Wicksell, and forms an important part of the Austrian theory of the business cycle.
The neutral rate provides an important benchmark for policymakers to compare with the market rate. When interest rates are neutral the economy is on a sustainable path, and it is deviations from neutrality that cause booms and busts. For example if the market rate is pushed artificially below the neutral rate (for example through monetary expansion) then people receive a false signal to invest in more interest-sensitive projects. It is by separating interest rates from their market clearing level that central banks have the potential to create monetary instability.
Because the neutral rate is a hypothetical construct we cannot observe it. Economists tend to believe that it is around 5 per cent ....
or
https://www.frbsf.org/economic-research/publications/economic-letter/2003/october/the-natural-rate-of-interest/
@Maurice: I have to agree with you on this point. Those people were thrown to the wolves in the interest of saving the overall economy. Absolutely not fair.