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Comment by aidenn0 | Hacker News Reader

> retail depositors are willing to receive 0% interest even when market rates are much higher

I'm unconvinced. I have a pile of cash that I would readily move to a bank that offered substantially higher CD rates than I am currently making. With online banking becoming normalized, competition for retail deposits should be much higher than it has been in quite a while.

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I'm kind of with you, but I read that sentence a little differently based on the rest of the article.

First, the agreement: I personally would move a lot of money for a better rate, but it would have to be non-trivially better. I'm thinking if I'm getting 0.75% now, it'd have to be 2% or maybe 1.5%. Not positive. Maybe you'd have a lower threshold.

The other point to me, though, was that Wang is arguing that the banks won't feel the need to increase their rates because they are already attracting so much money in deposits as it is. Whereas before they would have to pass on the higher interest rate to their customers in order to attract the deposits, they now are flush with cash themselves that they don't need to attract more deposits. And maybe ALL banks are feeling that way (again, in Wang's opinion, I think). So, the overall competition for deposits is low, which means higher rates are just increased profits for the banks.

Not arguing correct or not on that, just sharing how I understood it.

You can get 10 to 12% on a "CD-like" 3-month deposit account in USDC at Crypto.com. Even the flexible account (no lockup) is 8% right now. And they have a Visa debit card that you can spend USDC directly from your account.

What are they doing with that money to be able to give such high rates? Are they FDIC insured?

They are certainly not FDIC insured, but to their "credit" when you attempt to stake any money with them they are quite upfront about this fact. In other words, if you are hacked, or they are hacked, or the underlying (USDC/Tether/DAI/etc) goes bust, you have no recourse. It's certainly not without risk, but the level of risk of a default/loss event is in the eye of the beholder. Caveat emptor.

The way they are able to offer such high rates is they partner with large institutions who wish to take on extreme leverage/margin in order to short cryptocurrencies or leverage-long play them.

These institutions and high-net-worth individuals have no problems paying 30%+ APR on a crypto loan (coming from many such individual users' staking vaults) because they tend to hold their positions over days or weeks, not years.

To add to why they might do this, their potential for profit (arbitrary e.g. shorting BTC at $62k and closing at $59k; or 5x leverage-buying BTC at $50k and closing the position at $53k) is tremendously high considering how volatility cryptocurrency markets are; far higher than the interest they pay to Crypto.com/Coinbase/Gemini/Kraken/any of these other services which offer 8-12% APY yields to retail users.

It really makes you wonder how scalable those rates are if that is true. In the sense that if the pool of depositors grow, it will become increasingly hard to find borrowers with this profile. There is simply a limit on the number of such speculators.

Agreed - this is an "ending soon" sale so to speak. A year, or maybe five from now, the number of depositors will have increased significantly compared to the pool of borrowers, and I'd expect end-user interest rates to drop.

As a nitpick: you cannot actually spend/top-up the debit card using USDC with Crypto.com.

However you can do so using DAI or certain other stablecoins. You can also do so using Ethereum and a select few cryptocurrencies.

Do you mean to say that when you top up with USDC, it converts to USD? It's 1 to 1 and instant so in practical purposes you are using your USDC directly. I have no issues doing so on my card.

Crypto.com actually tops up 98.5 cents per stablecoin dollar, which is a bit frustrating, but other than that slippage, yes it converts to USD on the (prepaid debit) card.

You keep mentioning things that I'm not seeing or experiencing. I literally just topped up my card yesterday. 1000 USDC from my cypto wallet to the card, which now has $1000 of USD spending power. 1 to 1. Maybe this is a jurisdictional difference if you're not in the US or something, not sure.

I just checked and USDC is indeed available now for card top-up. How long have you been using the card? USDC top up wasn't available quite recently for USA users.

I verified I wasn't imagining and checked to find several reddit threads from US-based users wondering why you cannot use USDC to top up. Here's a fairly one: https://www.reddit.com/r/Crypto_com/comments/oll7n4/is_the_o...

The ability to top up with USDC was only recently added. That being said, I tested it and 1USDC does indeed convert to 1USD.

But go ahead and try to top up with DAI - you'll see at this moment in time, 100.98 DAI is required to top up $100 USD. As mentioned previously DAI was the only dollar stablecoin available to USA users, so it was a bit of a raw deal.

That kind of makes sense; the argument is that the supply of deposits so far outstrips demand that depositors lack any leverage to increase prices.

This would also raise the question: If the current low costs of retail deposits allow banks to print money, then why aren't we seeing more banks open up to print money?

» why aren't we seeing more banks open up to print money?

I don't know the details but the folks behind Simple tried, really tried to do the complete stack themselves. They gave up and first had a "real" bank handle it and eventually folded. There is a lot of red tape around creating a bank and as far as I understand, small local banks exist by being small and local. Like they couldn't operate nationally if they wanted to...

I've heard similar things from other sources. AIUI it's really hard to get a new banking license, both in terms of what you have to do to prove you are following regulations, and what you have to do to get the license.

In EU, I think one of the requirements is a minimal capital requirement. I can't remember the exact number, but something like 5 million EUR.

I don't think most of the small local banks could have started in the current environment, as I gather many of them were founded on a small community pooling their money to help each other and earn some money in return.

In Europe it seems we have them?

There are quite a few app-only or direct-banking things that opened up in the last decade (off the top of my head: N26, Monzo, Revolut, Starling, Illimity all have banking licenses).

It's true they often rely on some established bank but they haven't folded yet.

Money printing is mostly tied to audited real-estate. You can't just get a license and start printing money out of thin air. In the US, this can be done by companies other than banks (ie: mortgage companies). The big banks, nowadays, are liquidity traders. The smaller/community banks are a service provider. A real "bank" no longer exists.

How important are retail deposits at this point, with all this new QE money flowing in. It almost seems like a drop in the bucket for the big financial companies. Even if not, aren't they getting most of the benefit from dark pattern fees instead of from doing what banks are supposed to do - invest the pooled money wisely and extract a better return than individuals could?

https://www.wsj.com/articles/banks-to-companies-no-more-depo...

I'm responding to TFA which claims that banks have such a large supply of retail deposits that higher rates will just lead to banks extending more credits. If retail deposits don't matter than TFA is completely irrelevant.

They are irrelevant. Banks need deposits to opperate. They can borrow unlimited quantities for 0 at the fed or go through the hassle and expense of having millions of retail deposit accounts. The chose free money on one phone call every time over dealing with retail every time.

If the fed stops being the source of funds, expect a free toaster if you open a savings account and a pre 2008 style competition for deposits, in particular fixed term deposits. A long way off still.

> benefit from dark pattern fees instead of from doing what banks are supposed to do - invest the pooled money wisely and extract a better return than individuals could

Banks make fuck all on your dark patterns and shittons on investing the money.

For big banks overdraft fees represent 5~10% of revenue, for small banks it's 40~50%

Its sometimes 200%+ of profits. First National Bank of Texas (doing business as First Convenience Bank) made over $100 million in overdraft fees yet posted an annual profit of just $36 million in 2020

Giving people money when they dont have any and charging them for the pleasure of not having their rent cheque bounce or be unable to buy any food for a week is hardly a dark pattern.

Personally I would do away with overdrafts all together and solve the problem. But that isnt going to be a popular opinion and people would compain that people are unable to buy groceries or pay their rent.

There are some banks that have done shady things like posting all withdrawls for the day before all deposits, which greatly increases the likelyhood of an overdraft.

Few people try to make a profit on cash holdings. They prefer safety, liquidity, and convenience. Is that 50-100 bps worth it to keep shifting all your accounts around? Perhaps you should just invest a little more into a different asset class and less into cash.

Currently people are losing money (in real terms) on cash holdings; the spread between inflation and interest rates is what people are paying for the liquidity.

So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me. 100bps would certainly be enough for me to move my savings around annually, given that ACH transfers are nearly free.

If it makes sense for you, do it. The average bank balance is ~$10k, so a 100 bp gain is $100 dollars. A 100 bps gain would triple the current yield for online savings accounts. I’m skeptical that would be enough motivation. Most people just want to pay their bills on time. They’re not building optimal financial portfolios.

>given that ACH transfers are nearly free.

Are they not completely free to the ACH end user? Unless you are referring to an indirect cost of the transfer time? I've never had to pay a fee for ACH.

Yes, with ACH it's possible for the money to be tied up for some time, which deprives you of interest.

>So the idea that retail depositors won't chase higher rates is saying that retail depositors don't care how much it costs to park cash in a bank, which seems absurd to me.

Welcome to a global economy with imbalanced trade. Export surpluses leave the exporting nation with too much foreign currency while simultaneously draining the industrial base of the importing country. If the exporting nation invests their money into the stock or housing market they are exposing themselves to a bubble, if they just hold onto the money they avoid the risk.

Yeah I’d rather hold assets for anything I don’t have a possibility of immediately needing. Even with more volatile assets like stocks, generally I can expect that it will be worth more at some point in the not too distant future than today, whereas cash is always worth less.

As a result I intentionally have 0 cash savings. Enough to live on for 2-3 months in my checking account, plus I have available credit for emergencies, everything else goes into assets I can expect to appreciate in high single digits worst case. If anything I feel like most people have a much less aggressive allocation than they can probably afford to (although I also have little debt, just a car loan, and a relatively low cost of living which makes this easier)

Yes, with credit cards, there’s little reason to keep money in checking unless you have a low credit limit. I hold physical cash for real tail risk, and you can always deposit that if need be.

Just as you expect your asset to be worth more at some point in the future, you can expect your cash to worth less at some point in the future. These follow from each other. To say the cash is always worth less is not coherent with your stated asset model.

Competition in banking is peculiar. Banking only works well with a stable deposit base. For this reason, banks don't like to chase after the customer that will take their money across the street for a ten basis point increase in yield.

Online banks offer a risk free higher yield but it comes at the cost of local branches. If you’re closing on a house and the extra business day to get a cashier’s check delivered costs you a deal you’ll be pissed.

If you're closing on a house you will probably use a wire transfer not a cashier's check, and online banks readily offer wire transfers.

There a very serious class bubble on hackernews when people think about 'the average American'

Travel to a series of Walmarts and McDonald's 1 hour+ outside of your local metro and ask people what interest rate they're getting

You can make 8% or so with USDC on a platform like Nexo, that’s what I do now. There’s more risk because it’s not FDIC insured but the rates are too attractive for me not to take advantage of it.

Not just not insured - presumably that rate is compensating you for actual credit risk.

Loans are all collateralized at least

Non-insured returns of around 8% are available in other places too...

Are you not worried about dealing with the complex tax implications of this?

I’ve been eyeing it but the legal uncertainty about this product and the corresponding headache of taxes hold me off.

Taxes arent that bad, it’s only considered a capital gain when you sell or exchange. So not really any worse than crypto generally although potentially annoying if you don’t keep it in mind.

As for the legality, I don’t think there’s much risk of them being declared illegal or anything. Eventually the space will be more regulated etc and most likely yields will decline but it’s still better than you’re going to get in a money market account or with bonds or something like that

I meant the taxes from dealing with usdc et Al. If it’s a security, then any trade of usdc for another coin is a taxable event, and all “interest” payments are… what? Not sure if that’s just considering income like mining or what.

I am happy to receive 0% for the time when I believe the market is priced far too high and a sudden correction is on the cards. I have the peace of mind that my cash is not going to lose 30% of its value overnight and also look forward to an opportunity of picking up some nice assets for a huge discount at some future date in time.

Since 2009, this comment is always repeated. At some point it may be true

Like in 2008?

But when is the right time? If you bought nov 2008 you would have 6 more months of declines in a lot of names. This idea is even harder than holding on to your winners. Automate a transfer into a dated retirement account for 90% of your investments.

It already was true between 2009 and now (March 2020)

Your cash position is steadily losing 5% a year to inflation. Probably even more the last year. The discount in the future may be lower than the current price.

My cash position is short term though. Less than a year for sure.

Have you looked at i-series bonds? I was getting 4% on mine last I looked. It’s a great place for a rainy day stash.

Everybody keeps saying this but I looked into it and the 4% is only up to a $10k limit - chump change for anyone on this forum.

What are us faang employees supposed to do with the other couple hundred thousand to couple million dollars in cash that's not yet invested?

Why on earth do you want/need that much cash?

20% of my portfolio is what my adviser recommended to leave in cash. It's pretty standard (10 to 20%)

Why do you even both with i-bonds when it's only 4% up to $10k? It's $400 per year. You could just skip going to dinner once.

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