Concord bank offers a 100-year CD | Hacker News Reader

Concord bank offers a 100-year CD

concordmonitor.com

94 pointsOctokiddie127 comments

I assumed the point of this product was to buy it in a tax deferred account, then loan against it. You’d have zero risk of a margin call ever happening. Then after you’re dead it’s a guaranteed payoff of the loan. Would be a very very cheap way to convert your tax deferred accounts into tax free liquid cash now.

Loans against a retirement account are treated as distributions under the tax code.

You are correct. I did not know that.

Explained here: https://finance.zacks.com/can-retirement-accounts-used-colla...

This is a nice alternative to an annuity. It's actually better since you will get your principle back. You can gift it to someone or use it as a way to finance you retirement and be sure of the regular income for a very long time. You can even put it in your Will.

FDIC insurance would be the real gain here. That’d cover accrued interest as well.

4.75% perpetual FDIC insured CD vs 30 year treasuries paying about 3.8% right now is interesting.

A number of very large brokerages have short-term largely treasury accounts returning in the 4-5% range right now. I wouldn't toss all my money there but it seems like a pretty good place to park cash for the next year or two until rates drop.

There's a 10 year interest penalty for early withdrawal.

That doesn't seem like a good deal at all then. The brokerage accounts are basically "like cash" sweep accounts.

The deal is in locking in the interest rate forever.

Of course, this is only a great deal if the money is taxed at a very low rate and your horizon is very, very long.

Short term treasuries are paying more than that. 6 month is at about 5.3% and that’s State tax free.

Bond yields can only be compared apples to apples at similar durations and at similar credit risks (which FDIC insurance normalizes).

What's interesting is that until very recently, the interest rate on treasury bills were higher for shorter term ones versus longer term. That is, the 4 week ones had a higher interest rate compared to the 26 week ones. In fact, the daily treasury bill interest rate for May 26, 2023 was

    5.78% for 4 weeks
    5.30% for 8 weeks
    5.16% for 13 weeks
    5.28% for 17 weeks
    5.18% for 26 weeks
    4.98% for 52 weeks

[1] https://home.treasury.gov/resource-center/data-chart-center/...

This is the famous inverted curve. It’s generally been a predictor of recession. But this time it’s been inverted for over a year with no recession (yet).

One of the many baffling parts of the economy currently.

The yield curve inversion to recession lag is typically around 18 months (with big error bars), so it’s not super notable yet.

Locking yourself into an interest rate for a long time period right now is like buying the stock market at the top. Get a high interest savings account with Wealthfront at 4.55%, for example. You’ll be glad you did when rates hit double digits over the next decade. Rates aren’t going back to zero ever.

interest rates have been falling for over 700 years [1]. I wouldn't bet against that over a single unprecedented year

1. https://www.bankofengland.co.uk/working-paper/2020/eight-cen...

It is more than a single year and this happened during the 1970’s and 1980’s stagflation era.

Of course worse inflationary crises have happened in Western history and while they returned on a large enough time scale that really didn’t matter all to much for all the poor citizens for whom their hard earned wealth was nukes from orbit.

Isn't this cherry picking data?

Your time machine is as good as mine. Rates can keep going up and up and up like the 70's, or they could crash back down when AI and robots put us all out of jobs, or the dollar could become worthless along with everything else after a nuclear holocaust.

You can do both to hedge that interest rate risk. Some fixed, some floating. No one knows where rates are headed and savings account providers can change rates at any time.

It’s capped at 150,000 so not much in terms of income. Article doesn’t specify if this cap is per account or individual

Probably best not to exceed FDIC limits for a novel bank product.

A CD isn't novel.

A 100 year CD is, from the first new mutual bank in the last fifty years.

Doing the same thing but longer isn't novel.

Try telling that to the world's oldest person!

FDIC insurance is by account, not individual.

My point was that this is somewhat of new and exotic product, and interested parties should be mindful to ensure their exposure does not exceed insurance limits. While you might find a way to buy more of this CD than the bank permits through their limits, that doesn't necessarily mean you should.

https://www.fdic.gov/resources/deposit-insurance/brochures/d...

> The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

> The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.

> All deposits that an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.

You can open multiple accounts, most banks let you. There are ways to increase the insurance limit. Joint accounts are doubled and there are other ways to increase the total to more. But ya, ultimately it's not a whole lot more.

On the other side, how many people have $150,000 to lock up for a century. Not many...

> how many people have $150,000 to lock up for a century

Realistically 100yr and "the rest of their life" are synonymous, and plenty of people. Sure I don't have 150k in cash just hanging out in my checking account, but if I thought this would be a critical supplement to my retirement, then I could scrape 150k. My parents who are near retirement age certainly have 150k they could put here if they were so inspired.

What good is it to get the principal back in 100 years ? If inflation stays between 2 and 3%, the principal would only be worth between 5 and 13% of what it is today. If inflation is between 4 and 5%, principal in 100 years would be worth between 0.7and 2% of todays value.

People buy annuities for the guaranteed income. That's an existing product people want. Annuities get ~5% interest, and when you die you usually forfeit the principal. It's also not FDIC insured.

This CD is 4.75%, FDIC insured, and you get the principal back. It's superior to an annuity for a good chunk of people. Sure the principal degrades in post-inflation buying power (excluding the interest payments), but that's not the point because it's competing with $0.

> but that's not the point because it's competing with $0.

If the option is "Buy the CD or do nothing" though, correct?

I believe it's [buy this CD, buy an annuity]

Can you withdraw the interest penalty free before the term is up?

The interest can either add to the principal or be a regular distribution.

With global population stagnating in the coming decades I wouldn't bet on inflation staying the same. I think it's more likely that we are headed into a deflationary crisis worse than 1930 Germany.

Have you seen UN projections about global population increasing?

Practically all models estimate peak population to happen somewhen in the second half of the 21. century. And most countries outside of Africa are likely to go the way of Japan far sooner.

Japan's birthrate (~1.3) is about the same or only slightly worse than most Western nations. The US is about 1.6.

The one that's really eye-opening is South Korea (~0.8).

Population increases in India and Africa have no impact on the economic catastrophes pending in the Western world and Asia.

Population increases in immigrant source countries have no impact on the economies of the largest immigrant destination countries?

Population stagnating is what keeps everyone in my country employed even in a recession. Take a look at India or the Philippines: everyone is replaceable and life is not a scarce resource.

Companies hate it though. They want cheap workers instead of competing for employees.

Oh, I agree. There's many good reasons to celebrate population stagnating: economic, social,ecological. But it's not going to be a painless transition from the last 2-300 years of a system predicated on growth.

How does inheritance tax treat this annuity? Are you landing your loved ones with a tax bill without liquid assets to pay it off.

There's a 10 year interest penalty for early withdrawal. and on the faq[1] it says:

> Note that in the case that you withdraw the CD before 10 years, the penalty would reduce the principal value of the CD.

Does that mean if they close within 10 years, the FDIC insurance would be below the principal?

[1] https://www.waldenmutual.com/posts/coming-soon-our-100-year-...

> Does that mean if they close within 10 years, the FDIC insurance would be below the principal?

No? The FDIC insures the money in your account, not the money in your account minus some random estimate of your fees.

CD: Certificate of Deposit.

Thanks, for some reason I though credit derivative.

I thought Compact Disc, yours is still more relevant.

Same here. Most of mine didn't survive 10 years before becoming unreadable.

A Blu-ray disc that's guaranteed to last 100 years would really be something.

Of course by that time there would be problems with finding a device that could read such a storage medium, but I assume a custom one could be made easily with the technology of the 22nd century.

Buy a 100 of them and keep them with the discs. Also keep adding adapters so you can connect your then present-day laptop with USB-40 all the way down to the USB-3 connector that we're using today.

> Buy a 100 of them and keep them with the discs.

Of course! My only concern is that plastic parts often start getting brittle after 35 years or so and might simply not survive.

In the meantime I found an alternative a solution: there exist consumer-grade 3D printers with 50um precision - hooking up a camera with a microscope in place of the nozzle should be enough to produce pictures of e.g. 100um x 100um tiles and stitching them together to get an image of the whole disc.

>>A Blu-ray disc that's guaranteed to last 100 years would really be something.

All BDXLs should last that long, easy. In fact Blu-Ray Mdiscs were rated for 1000 years - but they didn't even bother certifying BDXLs as MDiscs since they use the exact same technology. The BDXL 128GB quad layer discs are meant to be the most durable of all of them.

> In fact Blu-Ray Mdiscs were rated for 1000 years

Rated by their marketing team, not by reality. Independent testing showed marked different results.

Better than regular discs? Yes. 1000 years? No. Not even close (10-50 years seemed the range, depending on conditions)

I realize this isn't really the thread for this, but what is the most longevity-rated storage medium, tape?

Surely, it's paper. Properly stored it remains readable for thousands of years.

Standard medium? Paper stored well.

Custom special? Probably some form of the metal engraving encased in glass. GlassMasterDisc by Syylex was an attempt to do that for DVDs but I don’t think they’re made anymore.

Those actually were a LOT better than MDisc in practical tests

You can't just focus on longevity of the material medium, because then you'll be carving into clay tablets, which we have actual proof that it can last for millennia. Or maybe that is perfect if you only have a few very important kilobytes to store for millennia, don't need to retrieve data through a digital network, and can trust that there will be people who will know how to decode it.

Longevity is a function of both the material stability of the medium and usability (of storage, of retrieval, of space, of scale, of complexity, of cost). If nobody can decode those bits, it doesn't matter if they are still in the medium. The most optimal storage system is not a single technology, it is a well-funded and well-managed institution. You need people to regularly check integrity of redundant archives and replace individual media when they fail. You also need people to migrate the entire archive to new storage technology when the current generation is growing obsolete. The institution has to regularly buy and maintain drives and computers that can read it, which is often overlooked. Another major issue is longevity and documentation of the data formats and encodings. The bits can still be on the medium, and your drive can still read them, but are you're out of luck if you don't know how it was encoded.

"Tape" is not a single medium, it is a class that includes some formats that are now incredibly difficult to decode. Look at this recent thread about what is needed to read from an old IBM tape format, it's an expensive mess: https://groups.google.com/g/bit.listserv.ibm-main/c/AOlRa0qx...

Have they? Apparently American DoD certified M-Disc claims.

I can't find any results on Google that would prove otherwise either, if you have anything please link.

The American DoD did no such thing.

M-Disc PR released details of a DoD China Lake test that showed M-Disc was more durable than regular DVDs. They are, that’s not up for debate, though not by much & not all (as I’ll explain later)

The 1000 year claim is, however, utterly unsubstantiated.

The French National Laboratory of Metrology and Testing (LNE) did actual aggressive testing. M-Disc performance was low compared to other long term storage & comparable to regular organic DVD-Rs from Verbatim.

In fact it performed worse than regular organic DVD+R’s from MPO.

Huh, almost all of my CDs work great. Are you talking about pressed CDs or CD-Rs? The latter definitely have a much shorter shelf-life than the former.

Mostly CD-Rs, but I have a few pressed CDs which don't read at all any more, despite looking fine on the outside.

I've only ever seen the initials being used for Contract for Difference in a financial context.

I love the way they try to explain it in the article:

> CDs are a federally insured way for investors to receive a fixed interest on their deposit for a fixed period, in return for not being able to withdraw the money early without a penalty.

...still not spelling out what the abbreviation actually means - ok, it's in the paragraph above the one I quoted, but hidden away in a subordinate clause that's easy to overlook if you just scan the text. I was in the "Compact Disc" camp too BTW...

> Like most CDs, this one, which has a 4.75% interest rate

I am not familiar with CDs, but how can an establishment promise returns of 4.75% for 100 years? That seems exceedingly high. What if there is deflation in 2055 or a recession that sends the rates back to 1-2%?

I wouldn't worry about it. For every 1% they pay you, they're lending the same money out a half-dozen times at 3-4%.

A loan to deposit rate of 6x would be seen by bank investors as shockingly bad. Like near insolvent.

The average rate in the US is currently .6. Bank investors get antsy at .8 (prior to 2008 .9 was considered the line).

That’s why synthetic CDOs started: to create a whole derived market from loans that didn’t rely on loan to deposit ratios.

It led to the 2008 crash but they learned nothing.

CDO’s are generally no longer held by banks. The closest derivative are CLOs and the bank with the biggest exposure to them I could find was JP Morgan Chase who holds less than 0.5% of their assets in them. They owe more than 40x in deposits than they hold in CLOs.

In no way does a bank holding CLOs on their balance sheet validate the idea that they are loaning out their deposits 6x. That simply doesn’t happen with well run banks and people espousing that it does largely don’t understand banking.

Right, I wasn’t saying it was a current vehicle, nor trying to bolster the 6x claim.

I’m just pointing out that doing stupid financial shit that is effectively the same as that kind of over-leveraging us hardly new, nor raised many eyebrows.

Banking trades will seek the most ways to make money possible. Before CDOs were the poison they are today they allowed 50x effective leverage

Not even remotely true.

By then, it will be someone elses problem.

If they have long-term loans on their balance sheet of very long duration they are okay from a revenue-stream point of view. Current interest rates are still low from a historic point of view.

It could be a good hedge for them because if they have a lot of 30 year loans on the books, then they want a lot of low-liquidity deposits in case rates go up and the nominal value of the loans they have go down. 10 years of interest penalty is going to discourage people from withdrawing early. Also, it's probably not a bad marketing gimmick if they aren't going to issue too many of them.

Good question. The course of long-term interest rates in the US economy is uncertain.

Let’s assume Walden is successful at marketing this investment and it becomes a material part of their balance sheet. Otherwise, this doesn’t matter much.

If rates go up, Walden would print money by earning a spread. The 10-year penalty for early withdrawal is essentially the cap on their upside, and it’s a high cap.

If rates go down for a long time, Walden could become insolvent. At that point, you have to rely on the FDIC’s guarantee to make you whole.

Presumably they've hedged it, either directly or because they're holding sufficient assets with the right profile to make sure they can pay it in a broad range of scenarios.

What do you hedge your 100 year financial vehicle with? AFAIK there just isn’t anything that allows you to hedge against interest rates 50 years in the future.

So while this probably works out (especially if there is high inflation or high interest rates for some of the 100 years), I think the upside as a borrower is very limited, especially if this ends up being popular (if interest rates fall to 1% next year and stay there for 100 years, you didn’t get a great deal…you most likely just have a CD in a bancrupt institution).

> What do you hedge your 100 year financial vehicle with? AFAIK there just isn’t anything that allows you to hedge against interest rates 50 years in the future.

I mean the simplest answer would be to buy 100-year government bonds, there are at least a few countries that do those.

The US has 50 year mortgages and 100 year lease terms on certain real estate holdings are not extraordinary. Japan even had 100 year mortgages in the past.

FDIC insurance would cover the case where the bank went bankrupt. This is a strange financial instrument and I’m skeptical of it, but it’s not outlandish compared to other long held instruments like annuities. There might be some place for it in certain peoples portfolio.

They are not the only ones doing long term fixed income like this, I wonder what's with the sudden interest in everyone jumping on offering stuff like this.

The duration risk is ridiculously high though. Personally, I'd want 15-20% yield for that sort of risk.

It’s a CD, so the only risk is the interest penalty for early termination. There’s no principal risk for $250-500k.

My dad saved like this for my siblings and I with savings bonds.

There is duration risk, i.e. interest rates will certainly change over the next 100 years. Will they go up or down, yes. Will they stay on average higher than this CD or on avg lower? shrugs nobody knows. Hence duration risk.

You are talking about credit risk, i.e. loss of principal. Since they are FDIC insured, you are correct there is no principal risk, if the bank folds, you will either get your principal back or the new owners will continue to honour the CD.

If the circumstances warrant, you just exit.

Assuming you can swallow the fee(s). I haven't looked at the details, but usually exit fees get bad unless you hold close to duration, which in this case would be most of your entire life.

If they are doing this without exit fees, I'd be VERY surprised.

The early exit penalty is the last 10 years of interest.

That's definitely noticeable.

There's a lot of anticipation of huge economic gains to come, from 2024. I wouldn't be surprised if banks are being pitched to people of certain circles as the new business real estate...

If they design their program right, there's likely very little downside risk and huge risk of missing out on all that capital inflow.

Plus I guess, read the fine print...

They know there has been an inflection point and rates will be in the double digits in a decade. They get your cash at only 4.75% and will be able to make a massive low risk return by investing in treasuries or lending the money.

How do they and you know this, when even the Federal Reserve doesn't have a clue?

Also, 100 yrs and a decade are ridiculously different time frames. So even if they and you know this, it hardly matters. Duration risk is real though.

If they're unsuccessful they can declare bankruptcy and let the FDIC fund cover the gap. If they're successful they get big $$$!

> How do they and you know this, when even the Federal Reserve doesn't have a clue?

I think the Fed does know this. I’m not going to go into the nuts and bolts of my hypothesis, but the basis is that continually dropping rates for 40 years has been equivalent to putting the economy on stimulants and it started causing things to break starting in 2000 and continuing to today. It has forced an inflection point in the Fed’s policy, and rates will likely trend upward for at least the next few decades to stabilize things. If they decide to drop back to zero, expect even more fundamental breakage including further spiraling inflation as well as social unrest due to a larger wealth gap and further political polarization. At the moment, Jerome Powell is truly the most powerful man in the world.

The fed has always had this power, it's why there are a group of people involved and not just Jerome Powell.

I agree the Fed tries to know this, but I disagree that the Fed actually knows this, because they don't. If they did, they could have fixed our inflation mess earlier, but they didn't.

Whom is this a good deal for? 1.045^40 is less than 6, so you'd get back a 6x return after like 40 years if you don't touch the money? Even with the full $150k you end up with $1M which hardly seems like anywhere near enough to sustain you in retirement in 2063.

1.045^100 = 81x. That sounds more impressive, as inflation over the last hundred years is only 17x.

If you withdraw at 40 years you only get 30 years worth (lose ten years of interest according to their terms).

> 1.045^100 = 81x. That sounds more impressive, as inflation over the last hundred years is only 17x.

Viewed another way, though, if inflation is the same, "you'll" get 4.7x in real money at the end.

On the other hand, you'll be paying tax on that interest, so you are likely to be losing money in absolute terms.

A nonprofit might find it attractive, though.

I think it's an exaggeration to say you'd be losing money after taxes.. it's still at least 3x, but point taken.

Say I open a 1 year CD at 5% interest with $100.

Say inflation is 3%.

I will get $5 of interest.

The original $100 would be worth $103.

I'd better pay less than $2 of taxes on that $5, or I'd be losing money in absolute terms.

If my total marginal tax rate is 30%, then I'll pay $1.50 in taxes, and yield .5%; after 100 years then you'd have 1.6x the money.

If my total marginal tax rate is 40% -- say 32% federal + 8% California-- then I'm breaking even.

The same logic holds for longer term CDs, as you're paying taxes on interest accrued each year.

A 30% marginal tax rate across 100 years would be extremely abnormal as it implies you are mostly getting taxed at income tax rates at a very high rate.

> getting taxed at income tax rates

Interest is taxed at income tax rates.

It is a pretty high rate; but people who are excited to lock up $100k for 100 years probably have high incomes. Not everyone can structure all of their earnings and other income as capital gains.

For a single person in California, it's 24% + 9.3% at ~$89,000 per year, and 32% + 9.3% at ~$170k per year, and goes up from there.

So, here: 2.86% average inflation for past 100 years. (10^(log(16.785)/100) = 1.0286...). 4.75% APR. At ~89k/year, APR-after-marginal-taxes in California is 3.26%; or a real yield of 0.4%. You'll have 1.9x the principal after 100 years. At $170k-single-equivalent/year, there's an after-marginal-tax yield of 2.78%, or an after inflation real yield of -.007%. After 100 years, you'll have about half the principal in real money.

Presumably a 100 year cd would largely be used like an annuity, as a retirement vehicle. Which you’d expect to happen at low income tax levels.

I suppose if you are the beneficiary of the cd gift you could be taxed at that rate but at that point you have lots of options including donating it to a dag and it kicking off tax advantages to you for years and years.

You should probably not use inflation rates predating the Nixon shock for future predictions. So take the last 50 years and square it and you get ~60x over 100 years. It’s my view that dodgy math enabled deficit spending and speculative asset bubbles soaked up inflation which led to the temporary ability have both low interest and low inflation. Since we’ve already had the everything bubble I don’t thing we can create a bigger bubble to recreate the era of low interest and low inflation. I’m expecting the average interest rate plus inflation for the next 50 years be be greater than the previous 50 years.

FWIW, these are 100-year CDs, not 40-year--you can't withdraw the money early without significant penalty (10 years' interest in this case). 1.045^100 is 81.5. For reference, USD$1,000 in 1923 is $17,785 in 2023 [0], or 17.7x as much.

[0] https://www.usinflationcalculator.com/

I used 40 years because realistically a 1-year-old is not going to invest $150k to get a return when they're 101. Most likely it'll be like a 30yo investing for when they're 70 or something. Anyway, the point of the question was literally to understand whom this is good for. Is this meant for (say) 40-year-olds trying to invest in their children's retirements rather than their own?

As per the OP, it's a "Ben Franklin" instrument--he famously left money in his will, not to be used for 200 years, to demonstrate the power of compound interest. So imagine buying $10k of these CDs and leaving them to your alma mater or your children's grandchildren.

With rates at 5%, duration of a 30y bond: 15y, 50y bond: 18y, 100y bond: 20y.

In other words you barely get any duration benefit for a 100y bond over a 50y bond because anything beyond 50y is so heavily discounted it doesn’t matter.

There isn’t really any reason to buy that beyond the cool factor.

They’re offering a 100 year CD because they’re betting that the fed rate will remain higher than their current level for…well basically forever (or longer than any of us will live). I think it’s actually a pretty safe bet.

If they’re right, this is a terrible way to save your money.

And if they are wrong (and this sells well) … they might just go bancrupt, leaving you with only a small part of the upside.

I'd be interested to know their math model expecting a certain percentage to not have a beneficiary exercise it once the original account holder passes away.

They aren’t able to keep it. Even if no beneficiary, the state collects it in an unclaimed accounts fund so there’s no benefit to the bank.

Imagine the incentives and nightmare if banks were able to keep unclaimed accounts from people.

You can in fact look on your states unclaimed property website to see if you have been owed anything by companies over the years that wanted if off their books and relinquished it to the state. I had $70 from a Google Ads account from when I was a teenager I found on there.

The article doesn’t say but I’m assuming it’s callable, in which case it’s all loss and no gain since they can just refinance it when rates go down.

Read the bank's main announcement.

> Can the bank redeem the CD early? (Also known as a “callable CD”)

> No. Only the account holder can choose to redeem the CD prior to maturity (with applicable penalty for early withdrawal).

Seriously ? "Fixed %" ?? Even that papers that bringed Silicon Bank down was better - covers 15% of inflation...

What happens if USA joins the Euro in 2088?

That's remarkably specific, have you secretly invented time travel?

Not much. They would just redenominate it in Euro.

This may be a glib question, but I am curious about this: what happened to pre-Euro-currency-denoted financial instruments when the currency was supplanted by the Euro? Did they immediately convert at a defined conversion rate? Did they continue yielding and convert upon interfacing with hard currency? Was there (I assume there wasn't) a biblical jubilee where all debts were reset?

I have exactly 0% confidence banks or the United States will exist in 100 years. And I'm thinking there will be 3-7 territories run by trillionaire and/or religious feudal dictators.

3-7, oddly specific. Ok I'll bite - what are the names of these principalities and where are the boundaries?

0% is a pretty low probability, I’d take the other end of that trade.

“Walden Mutual, which opened last year“

Mmmhmm, I’ll pass.

It's insured, so...

Only for $250K though?

You can only buy 150k worth.

(And interest can be withdrawn penalty-free at any point, so you can keep it under $250k).

> Note that in the case that you withdraw the CD before 10 years, the penalty would reduce the principal value of the CD.

Guessing at what you're trying to say and responding accordingly:

You don't get an early withdrawal penalty from your bank failing. It's only if you electively withdraw the funds.

Is it a pressed or burned disc? Pressed discs should already survive 100 years if stored carefully.

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