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Old 05-06-2014, 11:08 PM
 
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Are interest bearing accounts just making inflation worse? Where does the interest come from? I know little about this. I just assume an interest bearing account gets its interest, by loaning out, mulitple times simultaneously, the deposited money and collecting interest payments from it.

Also there is the other gimmick from some online stock brokerage in which you open an account with them with large lump sum deposit into the account, and they give you some money after 3-4 months down the road guaranteed. Where are they getting this money? Is this a ponzi scheme?
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Old 05-07-2014, 02:54 PM
 
Location: Sunnyside
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That is exactly where they are getting this money from. Say you deposit your 100 dollars in an account. The bank then loans it out multiple times over and over again leveraging it because they only have to have a certain amount of that money held in reserves. So on that 100 dollars say they made 20% off it making 20 dollars. They pay you 2%, and in the end still net 18%.

The online brokerage places are the same way. If you invest 600k (that's usually the amount it takes) you get something like $250 dollars for opening the account. If you're investing that kind of money, the amount in commissions they're going to make off of you within the 4-6 months of opening your account in order to receive the incentive has already made them profit.

No Ponzi schemes at all. You could consider the brokerage option a "Marketing expense" and the retail bank an "operations expense"
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Old 05-07-2014, 04:25 PM
 
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Interest? What interest

Might as well stuff your money under a mattress

I remember back in 1990 when my normal bank account earned 8%
Older folks tell me around 1982 interest rates for normal bank accounts peaked at 20%
Sounds good to me, I'll take that and take my chances on high inflation

These days most people are "forced" to go into the stock market,
I try to be very conservative but there is always some risk being in the market
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Old 05-07-2014, 04:32 PM
 
26,152 posts, read 21,391,991 times
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Originally Posted by VT22 View Post
Interest? What interest

Might as well stuff your money under a mattress

I remember back in 1990 when my normal bank account earned 13%
Older folks tell me around 1982 interest rates for normal bank accounts peaked at 20%
Sounds good to me, I'll take that and take my chances on high inflation

These days most people are "forced" to go into the stock market,
I try to be very conservative but there is always some risk being in the market


Rates weren't 13% through the 90s it hit that for a year and 20% in the 80s? You should have looked at cost outside of savings if you look at real numbers for the entire picture
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Old 05-07-2014, 04:44 PM
 
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Originally Posted by Lowexpectations View Post
Rates weren't 13% through the 90s it hit that for a year and 20% in the 80s? You should have looked at cost outside of savings if you look at real numbers for the entire picture
Yeah good catch ...typo it was 8 %
IMO banks are getting away with murder these days, uber low rates and they charge you for everything now,
so called service charges.
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Old 05-07-2014, 07:06 PM
 
26,152 posts, read 21,391,991 times
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Originally Posted by VT22 View Post
Yeah good catch ...typo it was 8 %
IMO banks are getting away with murder these days, uber low rates and they charge you for everything now,
so called service charges.


Are they robbing you with historic low mortgage rates too?
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Old 05-07-2014, 07:21 PM
 
17,876 posts, read 15,754,826 times
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Originally Posted by skinnayyy View Post
That is exactly where they are getting this money from. Say you deposit your 100 dollars in an account. The bank then loans it out multiple times over and over again leveraging it because they only have to have a certain amount of that money held in reserves. So on that 100 dollars say they made 20% off it making 20 dollars. They pay you 2%, and in the end still net 18%.

The online brokerage places are the same way. If you invest 600k (that's usually the amount it takes) you get something like $250 dollars for opening the account. If you're investing that kind of money, the amount in commissions they're going to make off of you within the 4-6 months of opening your account in order to receive the incentive has already made them profit.

No Ponzi schemes at all. You could consider the brokerage option a "Marketing expense" and the retail bank an "operations expense"
So basically, you are not really earning anything with interest bearing accounts because the more you give to them the more they erode away the value of what you give and what you get. Well, I guess it is better than nothing because your dollar's value is getting smaller and smaller anyways right?

I have been told that as long as I deposit the money with the broker like TDameritrade, I will still get something in return even if I do not buy anything.
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Old 05-07-2014, 07:22 PM
 
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What the heck are the rest of you talking about?
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Old 05-07-2014, 07:54 PM
 
2,294 posts, read 2,768,948 times
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Originally Posted by NJ Brazen_3133 View Post
So basically, you are not really earning anything with interest bearing accounts because the more you give to them the more they erode away the value of what you give and what you get. Well, I guess it is better than nothing because your dollar's value is getting smaller and smaller anyways right?

I have been told that as long as I deposit the money with the broker like TDameritrade, I will still get something in return even if I do not buy anything.
Putting aside leveraging for a moment(re loaning the same dollar multiple times which is irrelevant to interest) the interest you earn has nothing to do with inflation. Let's picture a world where a bank can only loan reserves once.

You deposit $100,000. The bank pays you 3%. The bank is losing that money. That's where it comes from, their pockets.

In order to afford to pay you that interest, they lend the money out and charge people for it. When they lend the money, they may lend it at 5% to someone to buy a mortgage. They then sit back, collect $5,000 a year from the mortgage in interest, and give you $3,000 a year. The spread is their profit.

That initial interest has nothing to do with inflation, it's just money changing hands.


Now, let's take this a step further. The guy who buys a house pays someone for their house. The seller then goes and puts that money back in the bank. So, the bank owes you your $100,000 back and owes the guy who sold the house $100,000, but they only have $100,000 in cash. That is how banks "print" money. It's not an evil scheme, it's just the reality of lending money. You don't think of it this way, but a deposit is technically a loan to the bank.

When people refer to the reserve rate, they're talking about the fact that a bank may be required to keep a 10% reserve. What that means is that when you deposited your $100,000, the bank would only be allowed to loan out 90% of that. The higher the reserve rate, the less money they can "print"
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Old 05-07-2014, 11:39 PM
 
17,876 posts, read 15,754,826 times
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Originally Posted by Jeo123 View Post
Putting aside leveraging for a moment(re loaning the same dollar multiple times which is irrelevant to interest) the interest you earn has nothing to do with inflation. Let's picture a world where a bank can only loan reserves once.

You deposit $100,000. The bank pays you 3%. The bank is losing that money. That's where it comes from, their pockets.

In order to afford to pay you that interest, they lend the money out and charge people for it. When they lend the money, they may lend it at 5% to someone to buy a mortgage. They then sit back, collect $5,000 a year from the mortgage in interest, and give you $3,000 a year. The spread is their profit.

That initial interest has nothing to do with inflation, it's just money changing hands.


Now, let's take this a step further. The guy who buys a house pays someone for their house. The seller then goes and puts that money back in the bank. So, the bank owes you your $100,000 back and owes the guy who sold the house $100,000, but they only have $100,000 in cash. That is how banks "print" money. It's not an evil scheme, it's just the reality of lending money. You don't think of it this way, but a deposit is technically a loan to the bank.

When people refer to the reserve rate, they're talking about the fact that a bank may be required to keep a 10% reserve. What that means is that when you deposited your $100,000, the bank would only be allowed to loan out 90% of that. The higher the reserve rate, the less money they can "print"
I like you examples. It makes things very clear. But if they need 10% reserve, how many times can they leverage the 90%? Even by leveraging once, are they not splitting the value of your $100K by slightly less than half. Instead of just $100K, there is now $180K out there.

I guess what I am saying is, by just giving your money to a bank, they will just take it and add more money into the system correct? By that act alone arent you just lowering the value of your money everytime you give it to a bank? Or do they only do this will deposits in interest bearing accounts?
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