Interest Rates on Savings?

[jnw]

I don't understand.  Back in 2018 Savings interest rate at Ally was like 2%.  And inflation wasn't that bad at all.   Now we are having 6-8% inflation yet best Savings I see is Monifi at 0.6%.

I remember when inflation was high back in the 70's and 80's.  Savings account interest was over 6%.  This confuses me.

Stock market is down and savigns sucks.. where are we supposed to put our money?  Real estate is in antoher bubble. 

[reeshau]

Savings rates are tied to interest rates, not inflation.  But they won't necessarily move up immediately when the Fed starts raising rates next week, though.  They will move up when there is a need for banks to attract more money, in order to make loans.  Americans saved a lot during the pandemic, and that extra input to banks is sitting around waiting to be loaned out, or withdrawn and spent.

https://www.statista.com/statistics/246268/personal-savings-rate-in-the-united-states-by-month/

A great alternative right now is I Bonds, which are paying 7.12%.  The downsides are: you can only buy $10,000 per calendar year,  (Plus up to $5,000 Through a federal tax refund) you have to hold them a minimum of one year, and if you redeem in less than 5 years, you give up 3 month's interest.

The interest rate paid resets every 6 months, but It's looking like, if anything, it may go up a bit next time, in May.

Another option:  SoFi, which just recently became a "real" bank, is offering 1% on up to $50,000, if you establish a direct deposit into the account.

[NotJen]

Doctor of Credit maintains a list of the highest interest savings accounts: https://www.doctorofcredit.com/high-interest-savings-to-get/

I'm currently using T-Mobile Money to get 1% on my savings with no limit and no special actions required.  And also doing bank bonuses to eek out a little more.  (ETA: and I-bonds starting last year.)

[GuitarStv]

This is why your real savings shouldn't be savings at all . . . they should be investments.

[ChpBstrd]

This is why your real savings shouldn't be savings at all . . . they should be investments.

IDK if now is a good time to buy corporate bonds, considering the likelihood of rate hikes. The Fed is going to have to play catchup later this year.

The Ibonds have enough yield to look good, for now.

[GuitarStv]

This is why your real savings shouldn't be savings at all . . . they should be investments.

IDK if now is a good time to buy corporate bonds, considering the likelihood of rate hikes. The Fed is going to have to play catchup later this year.

The Ibonds have enough yield to look good, for now.

I would never recommend a 100% bond allocation.

[goodmoneygoodlife]

I-bonds are great, but as someone above mentioned, there's a limitation there of $10k/yr.
One thing I've been doing is staking USDC and other coins pegged to USD for a rate of about 8%/yr.

The latter carries some risk, namely staking isn't going to be FDIC insured, and that policies around crypto might change at any time. I'd probably waterfall between:
1. I-Bonds, then
2. Staking some money to stable coins at an 8% yield, then
3. Buying dividend stocks (along with cheap puts to insure against price dropping past a certain range if you want).

[PDXTabs]

Savings rates are tied to interest rates, not inflation.

Yup. Your savings rate is directly tied to Fed policy.

[jnw]

The fed raises interest rates to battle inflation right?  So say inflation is 8% due to increased costs to transport goods and make them.. supply and demand etc..   So now if the fed hikes the rates, the companies have to pay more to function due to higher interest rate on debt.. that increases their costs.. so why wouldn't inflation go up further?

[maizefolk]

The fed raises interest rates to battle inflation right?  So say inflation is 8% due to increased costs to transport goods and make them.. supply and demand etc..   So now if the fed hikes the rates, the companies have to pay more to function due to higher interest rate on debt.. that increases their costs.. so why wouldn't inflation go up further?

Because when company's costs are higher they buy less stuff, they rent less office space, fire some of their workers, and so on. They definitely don't invest in expansion or hiring more workers.

This decrease in demand, produced by the increases costs of doing business, brings down prices since there is less demand chasing the same amount of "stuff" (land, labor, goods).

That's why raising interest rates can ALSO trigger a recession: it's trying to push companies to employ fewer people and spend less money.