Why are interest rates so low?

[rekees4300]

Banks love it because they are essentially getting free inventory as opposed to actually having to pay depositors.

Banks love to make money by transferring it from their customers to the bank. IMHO interest rates of .01% are a ripoff. If you would like to earn 9.62% then invest in Treasury I bonds.

Individual - Series I Savings Bonds FAQs

 

[Doughknob]

The economy is a self serving monster that is little controlled by politicians, media, or businessmen. I have to stop here or I will go off on a rant and enough of you think I am crazy and wrong.

Not crazy at all. Dead-on with that ‘little controlled by….’ statement.

 

[YanmarFever]

Banks love to make money by transferring it from their customers to the bank. IMHO interest rates of .01% are a ripoff. If you would like to earn 9.62% then invest in Treasury I bonds.

Individual - Series I Savings Bonds FAQs

Rekees
Where do you buy them, and how long do you have before they mature?

 

[/pine]

It's been a long time since I had to take a course in economics (back when there was the gold standard)....but IIRC...inflation is/was a direct result of the gov. printing more money than there was gold to back it up...

Below is from an article from 2012

Paper money creation allows the government to spend more, it keeps interest rates low and it makes stock prices high. It sounds too good to be true. And, it is. There are negative consequences (both actual and potential consequences) that I have not yet mentioned. The worst actual consequence so far has been a sharp increase in food and gasoline prices.

It has been known for centuries that printing money creates inflation. There are different kinds of inflation, however. These can be grouped into three categories: CPI ex-food & energy, asset price inflation and commodity price inflation.

Not sure how it works without the gold standard but I do know the fed started printing money long before COVID...like starting in 2008...it's finally catching up...COVID only delayed the effect...

 

[mike0000]

Rekees
Where do you buy them, and how long do you have before they mature?

treasurydirect.gov

I recently learned about I bonds through another forum. I opened an account and plan to open one for my wife too.


Mike

 

[npalen]

treasurydirect.gov

I recently learned about I bonds through another forum. I opened an account and plan to open one for my wife too.


Mike

The I-bonds mature in five years at which time they can they can be redeemed without the three month interest penalty. They have to be held one year before they can be redeemed at all. (cashed)

There is a $10K limit to purchase(s) per year but to take advantage of the current high interest rate of 9.65%, you can also purchase gift bonds that may be given to another person such as your spouse or children to the extent of the $10K limit per year for that receiving person.

You and your spouse could each buy a $10K bond (or any amount of $25 or more) as well as a gift bond which could then be exchanged between spouses the following year. All these start earning interest in the month they are purchased.

The interest rate is tied to the current inflation rate and is subject to change every six months so you cannot lock in the current interest rate like on a CD.

I am using proceeds from 401K RMD's to invest in I-bonds and will continue to do so as inflation runs rampant, then the proceeds will probably go back into mutual funds. Federal income tax on I-bond interest can be paid annually or when the bond is redeemed. No state taxes on I-bonds.

 

[2manyrocks]

The more they try and get us a "soft landing" the worse they are going to make it. I am starting to think to just let the market do it's thing and flush out all this leveraged money.

Thinking about this overnight, high fuel prices might just do what they lack the guts to do.

 

[Jchonline]

It was back in the early 1980s when prices started skyrocketing just like they are doing right now in 2022. The difference is that the gov't is saying we just have a 7% inflation rate while everything we buy is 2 or 3 times what it was a year ago. In the early 1980s I put $20,000 in a 5 year CD at 18% interest and after 5 years it was over $45,000. It seems that inflation is worse now than it was then but cd rates are still less than 2%.
Putting $20,000 into CDs now means they will be worth less than $10,000 in 5 years after inflation.

Banks are in business to make money. They make the most money and gain the most stability from longer term loans. When their rates to borrow money are near 0%, they will almost always try and sell loans to make revenue.

Offering CDs or interest bearing accounts is a cost center for a bank. They only due this if they need more capital for lending. Therefore you wont see these types of interest rates go up unless the loan rates get so high the volume decreases.

 

[hosspuller]

Be aware the interest rates I-bonds are paying is calculated from two factors... The inflation rate AND a fixed rate. The current "fixed" rate is ZERO ... Yet the inflation rate you're getting is taxed by the feds. So, your money is losing value, maybe compensated a bit by the inflation rate paid, (changed every 6 months) but the gov't gets a kick-back on that. The gov't always wins... even when it's losing.

 

[npalen]

Be aware the interest rates I-bonds are paying is calculated from two factors... The inflation rate AND a fixed rate. The current "fixed" rate is ZERO ... Yet the inflation rate you're getting is taxed by the feds. So, your money is losing value, maybe compensated a bit by the inflation rate paid, (changed every 6 months) but the gov't gets a kick-back on that. The gov't always wins... even when it's losing.

That's true but 9.65% interest is better than 0.50% interest. You get taxed either way.