Banks suffering as savers finally start to get a descent rate of interest.

Brookswood

Brookswood

Senior Member
The poor banks. My local Big Name Bank pays 0.04% interest on savings account and most CDs. Yes, you read that right. 0.04% interest. Apparently they also purchases a lot of long term bonds paying interest in the area of 1%. That’s still 25 times what they pay on a savings account. Now their stock are getting pummeled.

What fool buys long term bonds that mature 10 years or more at historically low interest rates?

Be careful. They May start to push for lower bond interest rates for we savers. This is only my opinion.
 

Brookswood said:
The poor banks. My local Big Name Bank pays 0.04% interest on savings account and most CDs. Yes, you read that right. 0.04% interest. Apparently they also purchases a lot of long term bonds paying interest in the area of 1%. That’s still 25 times what they pay on a savings account. Now their stock are getting pummeled.

What fool buys long term bonds that mature 10 years or more at historically low interest rates?

Be careful. They May start to push for lower bond interest rates for we savers. This is only my opinion.
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Maybe this will help explain...
https://tinyurl.com/2p8m3e76
 
It's a question of When, not If, our economy sinks into a major recession. Inflation is ridiculous, the Fed is in Panic mode, the government debt is reaching unsustainable limits, and the stock markets are overreacting wildly to every bit of bad news, Every day, it seems that we are getting closer to a "downturn" similar to 2007/2009.....hopefully not as bad as 1930.

There some CD rates that are fairly reasonable, and I-Bonds are a good buy...although they are limited on how many can be purchased. Checking accounts pay almost nothing, and Savings accounts are just starting to pay a worthwhile dividend.

As usual, it is the average consumer that is feeling the most "pain".
 
Brookswood said:
Not really.
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The banks collect interest on bonds, notes, treasuries. Some of those instruments may be applied to reserves. The Federal Reserve will pay that bank additional money for those reserves.

Very simplified example:
If current coupon rate of a 10 year Treasury note is 3.5%, the bank collects that 3.5% annually from the U.S. Treasury. In addition, any of that note value, which is applied to the Bank's reserves, would currently and theoretically be paid 4.65% annually... to the bank.
 
Harry Le Hermit said:
The banks collect interest on bonds, notes, treasuries. Some of those instruments may be applied to reserves. The Federal Reserve will pay that bank additional money for those reserves.

Very simplified example:
If current coupon rate of a 10 year Treasury note is 3.5%, the bank collects that 3.5% annually from the U.S. Treasury. In addition, any of that note value, which is applied to the Bank's reserves, would currently and theoretically be paid 4.65% annually... to the bank.
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Thanks. These will be interesting times. :eek:
 
Harry Le Hermit said:
I should add, that reserves are not just U.S. Treasuries.
At one time, excess reserves and required reserves were tracked separately... https://tinyurl.com/yck7t3zp
These days, they are lumped together... https://tinyurl.com/ycxn7cus
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I should also add... major (too big to fail) banks are flush with cash reserves. However, there are many of the lesser sized banks, needing to borrow money from the FED. Those interest rates are jumping. https://tinyurl.com/y9mrkb7a

SVB is in the news, as the structure of its reserves (treasuries, stocks, etc.) is the problem.
 
The tide of ultra low interest rates is going out, and bodies are washing up on the shores.
 
I'm considering buying a vault, and put at least 50% of my savings/investments in it. If the outlook improves ? I'll continue saving e.tc. like normal. If the outlook continues to look negative ? I'll put more in the vault .

I must admit [and hope I am wrong] I'm not feeling secure about the financial future of the nation .

No, I'm not wealthy ..... but I want to keep what i do have, and the banks sure as hell do not pay anything to keep it there. Not to mention the recent scary stock market.

I did read what @Rich29 posted ..... and will look into that .... Thanks for the info.
 
Brookswood said:
What fool buys long term bonds that mature 10 years or more at historically low interest rates?
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I'd guess it would be either people who have more than enough money for their needs and only care about not being exposed to stock market risk, or maybe pension plans and annuity plans that have to be certain of having enough cash on hand to pay out during long down periods of the stock market. So maybe they can view the difference between the higher rates of shorter term bonds versus the lower rates of longer term bonds to be similar to the cost of insurance?

Also, they can sell the long term bonds on the secondary market (at a discount to make them attractive to buyers) and use the cash to lock in new long term bonds with a higher interest rate.

I don't really know anything about it, but I'm just going by some of the comments by big buyers/sellers of bonds over on the early retirement forum.
 
Don M. said:
Inflation is ridiculous, the Fed is in Panic mode, the government debt is reaching unsustainable limits, and the stock markets are overreacting wildly to every bit of bad news, Every day, it seems that we are getting closer to a "downturn" similar to 2007/2009.....hopefully not as bad as 1930
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Do you feel inflation is currently ridiculous? I felt like it was late last year but my weekly grocery bill, while still stupidly high, doesn't seem to be growing much lately. I guess they are coming out with inflation numbers again tomorrow.

Also, what do you mean by the Fed is in Panic mode, aren't they doing exactly what they are supposed to be doing to cool inflation, isn't this just part of their job? Might be more accurate to say the Fed is causing new home buyers to feel Panic, ha ha (I'm so not happy with my mortgage interest rate, boo hoo).

We were well informed that giving those tax cuts to businesses and rich people were going to cause the debt to balloon. I'm totally against making poor and middle class people lose benefits to support the rich people. It is continually disgusting to read (and watch YouTube videos) teaching people with millions of dollars how to take advantage of tax loopholes to pay a lot lower tax rate than they should, and to get the maximum subsidy for their ACA whose true purpose was to support poor people, not to give millionaires tax subsidies. Arghh, it is so annoying.
 
Brookswood said:
The poor banks. My local Big Name Bank pays 0.04% interest on savings account and most CDs. Yes, you read that right. 0.04% interest. Apparently they also purchases a lot of long term bonds paying interest in the area of 1%. That’s still 25 times what they pay on a savings account. Now their stock are getting pummeled.

What fool buys long term bonds that mature 10 years or more at historically low interest rates?

Be careful. They May start to push for lower bond interest rates for we savers. This is only my opinion.
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bonds have fallen about 1% so far .

the ten year fell from about 4.50% to 3.50%

investors are in control of bond rates not the fed and investors are disagreeing with poppa fed and driving longer term rates lower .

that is why we have an inverted yield curve .

i own TLT which holds long term treasuries …the value went up about 6% in a matter of days. not including interest.

even with cds at 4-5% they still have a negative real return which is an inflation adjusted return .

if we slide in to a recession long term bonds can be this years stars
 
HoneyNut said:
I'd guess it would be either people who have more than enough money for their needs and only care about not being exposed to stock market risk, or maybe pension plans and annuity plans that have to be certain of having enough cash on hand to pay out during long down periods of the stock market. So maybe they can view the difference between the higher rates of shorter term bonds versus the lower rates of longer term bonds to be similar to the cost of insurance?

Also, they can sell the long term bonds on the secondary market (at a discount to make them attractive to buyers) and use the cash to lock in new long term bonds with a higher interest rate.

I don't really know anything about it, but I'm just going by some of the comments by big buyers/sellers of bonds over on the early retirement forum.
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it would be a wash to sell bonds at a loss and then rebuy the same bonds .

in fact right now anyone doing that would be buying at a lower rate not higher as rates on bonds are falling .

the 2 year treasury has seen the biggest plunge in rates the last few days since 1987 .

the 10 year fell from 4.50% to around 3.60% now
 
Brookswood said:
What fool buys long term bonds that mature 10 years or more at historically low interest rates?
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The banks made a lot of fixed rate mortgages at those low rates, with 15 to 30 year lifetimes.

Worried me at the time, still does, who will take the hit on that as interest rates rise? I don't know much about the banking system, but I do know someone will be stuck with those low interest mortgages.
 
Alligatorob said:
The banks made a lot of fixed rate mortgages at those low rates, with 15 to 30 year lifetimes.

Worried me at the time, still does, who will take the hit on that as interest rates rise? I don't know much about the banking system, but I do know someone will be stuck with those low interest mortgages.
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however rates on bonds have been falling not rising .

the 10 year fell from over 4-1/2 to 3-1/2% …

the 30 year bonds have risen in value 7% ytd as rates fell
 
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Inflation rate is at 3.45 I read. Not bad but not good. So if your money is earning less then you may be losing not gaining anything. Depends on your purchasing pattern
 
Inflation rate is at 3.45 I read. Not bad but not good. So if your money is earning less then you may be losing not gaining anything. Depends on your purchasing pattern
 
Victor said:
Inflation rate is at 3.45 I read. Not bad but not good. So if your money is earning less then you may be losing not gaining anything. Depends on your purchasing pattern
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Basic Info. US Inflation Rate is at 6.04%, compared to 6.41% last month and 7.87% last year. This is higher than the long term average of 3.28%.

If you are getting 5% on a CD like I am you are losing money to inflation.
 
year to date

gold now up 12%

long treasury bonds up 10%

total market fund up 7%

a cd assuming 4-5% annual is up 1-1/2% ytd

so risk assets are once again crushing cash instruments even in this environment
 

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