I wonder if this is partly the outcome of banks declining to offer any sort of meaningful ROR on savings accounts? Bank of America (for example) is offering 0.01%, although this rises to a whopping 0.04% for super-preferred customers. Yet they want $8/month to service the account unless there's a minimum balance of $500. Meanwhile, their mortgage rates start at 6.37%.
I'm baffled by how chase, bofa and the big retail banks have any customer at all who keep saving accounts with them. There literally doesn't seem a point other than to donate about 3% of that total to them each year in lost income. Or get short term Tbills for 4%.
There's a ton of reputable larger online banks giving 2.5 to 3% interest. Having a chase, wells fargo, or bofa savings account with 0.0X% is unfortunate. They are just preying on older or less financially savy customers.
I'm at one of these for the following reasons: 1) It's effectively free when you make sure to meet their conditions like minimum balance, have a direct deposit, enable overdraft protection 2) it's a short walk to the local branch, where I can talk to a human, 3) their web site and mobile app are both great.
American banking system never ceases to disappoint me. Overdraft fees! What kind of mustache twirling Disney villain came up with that?
And to have the gall of touting "overdraft protection" as though it were some sort of feature and not the solution to the problem they themselves invented
how much are you paying them in lost interest each year?
And yes, I have a checking account at one of the major banks, I also have a savings account that I keep zero money in because it was opened at the same time decades ago. Having a checking account doesn't seem to be a rip off, my money lands there and then transfers to better pastures. I just don't understand keeping any money in their savings account.
Like if I kept my emergency fund there rather than in a couple online banks, I'd basically be paying the retail bank $800+ a year. Sounds like a scam.
What do interest rates offered by the banks have to do with liquidity in the bond market?
The Fed speculates that the reason for the lack of liquidity is due to uncertainty about the economic outlook and uncertainty about the interest rates. The evidence they point to is that liquidity (defined by the bid/ask spread and the amount of available bonds at the best price) is lower for short-term bonds compared to long-term bonds. Short-term bonds are more affected by interest rate changes, so market participants are much more cautious about transacting in a large number of bonds at once. Rather, they split large purchases into many small purchases to ensure they're not losing money due to sudden changes in the price.
It's a different set of banks. I've got a high-yield online-only savings account that paid 2% or so last time I checked. I've also got a checking account with a brick & mortar bank that pays something like 0.01%, and the savings and money market options at that institution aren't much better.
That's just what the large incumbent brick-and-mortar banks have done for a decade - because anybody still using them as a primary bank clearly doesn't know better.
Meanwhile, the major online banks have been sending emails announcing interest rate increases like every single week.
There is a large set of infrequently encountered (for most) but often highly important and/or time-sensitive things that having a traditional bank you can walk into makes much easier.
Consider: medallion signature guarantee, initiating an arbitrarily large sized wire to an arbitrary recipient, cashing a physical check where the payee and indorsement doesn't match automatic remote-deposit scrutiny, cashing a particularly large cashier's check, getting cash above an ATM withdrawal limit (even from another bank or in another country, in some cases), working around a stated policy, etc.
Online-only, mobile-only, and neo-banks basically say "eh" to these corner-case services. But a branch manager, even if they may not personally recognize you, will have surprising leeway and willingness to solve problems if they look at the CRM and see you're a longtime customer in good standing with some modicum of deposit / activity over time. Not so for a rando.
It's been very worth my while to forego a couple % in interest income for the annual "need an institution to help me fix this today" tax.
(But yeah, keep the corpus in something that will pay you.)
I completely agree about the features of brick and mortar banks. My complaint specifically is about letting the large chain banks dominate your view. For example, BoA seemingly has the gall to charge a monthly fee on a savings account.
I'm lucky to have a competitive market for local banks that hasn't (yet) been completely borgified, and I do keep an account / safe deposit box [0] at one and use them for many of the things you mentioned. If you don't have any independent banks around, there is the common advice to look for credit unions instead.
I actually do keep an account at BoA too. It's the only link to another account that would be a huge hassle change out. Their ATM network is nice, the automated cash deposit feature on their ATMs is one of the easier ways to get available funds into the banking system on short notice, and I can stand keeping the $2k minimum balance for now. But still, they've got to be kept on a short leash.
[0] It's an inexpensive place to store external hard drives for rotating backups.
Difficult to overstate how significant this could be for the US. Watch the recent experience of the UK for examples. Or the experience of any of a number of developing markets.
Democrat or Republican any administration’s first priority is keeping the bond market happy. Has not been an issue for a long time but if it becomes one… damn.
You don’t have to like it. You can think it’s incompatible with your view of democracy or gives too much power to banks or finance or whatever (fyi it has nothing to do with that!) but it is going to be a giant, giant problem if demand for treasuries is significantly negatively impacted.
The fed rate will go up until there’s a market for treasuries, the US isn’t the UK or an emerging market. The dollar is just a bit too strong at the moment and we’re trying to gracefully fall off a cliff.
Does this mean that the demand for new treasuries is drying up? That would suggest that they would need to raise interest rates further to attract more money?
They're going to try to rebuy the older low interest bonds but that brings "significant operational complexity". Why would they give the money back that they just got by selling bonds?
"Why would they give the money back that they just got by selling bonds?"
I was confused at first about who would be doing the buying but your link makes it clear that the Treasury is thinking about buying back the higher priced bonds while at the same time they are selling the lower price bonds.
Full title: Fed warns of ‘low’ market liquidity in $24 trillion Treasury market, in latest financial stability report
It’s stuff like this that I’ve been waiting to see before starting to particularly worry. Though lowered liquidity would seem to be a sign of lowered inflation. Idk
I've heard that this is actually a buyer liquidity problem and not a general liquidity problem...i.e. too many sellers and not enough buyers. Makes since the world is trying to offload their foreign reserves to combat the surging dollar and defend their own currencies. Immediate effects will be how the US Gov handles the fact that their interest rate payments are gonna shoot up when they have to roll over the debt.
There are plenty of buyers (I just bought some myself). The problem is people who levered up on them (banks, foreign governments, pension funds) don’t want to sell at a loss, because they will go bankrupt.
Banks either use Fair Value accounting or Accrual accounting for a given position. If it’s fair value, then the bond is already marked down on the balance sheet. Selling it or not does not result in a profit or a loss, at least not a significant one. If it’s in accrual, it’s held at par so there is no loss on the balance sheet, but they also can’t sell. They need to hold to maturity, that’s the rule.
Yeah, so an inability to sell because they are levered up and using accrual accounting isn’t really a lack of liquidity in the market. It’s a seller liquidity problem, not a buyer liquidity problem. which is a weird type of liquidity problem.
https://www.bankofamerica.com/deposits/savings/savings-accou... https://www.bankofamerica.com/mortgage/fixed-rate-mortgage-l...