Your Bank Is Screwing You
& SUPERCORE Inflation
What’s your deposit rate right now? I bet you don’t know.
Your bank is hoping you don’t know either.
Banks
History Lesson
A Different Measure of Inflation is Hawt
Summary—Banks are always slow to raise their deposit rates, but some continually raise theirs. Be on the lookout for good deposits, so you earn FREE money.
Banks
You can't live with them, and you can't live without them.1
Bank’s primary business model is to take in deposits and then make loans backed by those deposits out into the world.
The spread between what they pay on deposits and what they make on loans is how they make money. The bigger the spread, the bigger the profits.2
There is a floor to what banks can charge on their loans, and that centers around the Federal Funds Rate, which the Federal Reserve sets. That drives the starting point for what money costs. Banks will not have a loan rate lower than the Fed Funds rate, which is currently 4.75%, and it will get raised to at least 5.00% in a few weeks.
The floor for deposit rates is essentially 0.00%.3
This culminates with an average savings rate earning 0.23%.4
Meaning banks are charging higher interest rates for their loans but not passing on that higher deposit rate to their deposit customers (you).5 6
Banks are banking on you being lazy. Because there are banks that offer automatically adjusting deposit rates. I help clients manage this by finding great banking partners!
If you don’t have someone like me, do a little research and find out what banks offer competitive rates.
Then if you want free money, open an account and send your savings to that other bank.
There is a big difference between 0.23% and 4.25%; $10,000 = $400, and $100,000 = $4,000.
$400 is a lot to me for the minor pain of opening a new bank account.
Or you could do nothing. Your current bank is “banking” on it.
History Lesson
Check out the podcast, where we go into the history of how we ended up with ETFs (exchange-traded funds).
Quick summary: There were professional stock pickers → they pooled assets and created mutual funds → passive investing (tracking an index) becomes more in vogue → technology allows for passive investments to be traded like stocks (boom, ETF)
A Different Measure of Inflation is Hawt
I usually reference the Consumer Price Index (CPI) when discussing inflation. It's the most popular one.7
But there are a lot of different inflation models.8
The Federal Reserve (and my boy JPowell) have their favorite measure of inflation: Personal Consumption Expenditures (PCE).9
Sadly, PCE is still coming in hawt (4.7% actual vs. 4.3% expectations):
Also, within that measure of inflation, there is another called “supercore.” And that’s important because our pal JPowell said so:
Fed Chair Jerome Powell has said that it [supercore] “may be the most important category for understanding the future evolution of core inflation.” 10
Supercore is a subset of inflation. Its core services ex housing. It focuses on just the service component of inflation.
And it’s not coming down:
The big concern here is that supercore inflation is considered “sticky.” Meaning it won’t come down as easily as supply-related inflation components. The fear is that it will only come down with a recession *cue the scary, ominous music!*
Feel free to reach out with questions and comments!
Ah, my favorite part:
DISCLOSURE
The information presented is solely for informational purposes. The information, statements, comments, views, and opinions expressed in this podcast and newsletter do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. The views or opinions expressed in the podcast and newsletter are the views of the author and do not reflect the opinions and beliefs of the podcast and newsletter or its affiliates, the author’s employer, or any other person. The podcast and newsletter do not undertake any duty to publicly or otherwise update or revise any disseminated information.
Banks do provide an essential service and help expand the economy.
Profits are not a bad thing, you commie.
Unless you’re in Europe, where they went negative for stupid reasons.
https://www.bankrate.com/banking/savings/average-savings-interest-rates/
This is a little nuanced because as loan interest rates increase, that doesn’t necessarily mean banks are making a ton more on their loans. Remember, the cost of money is based on the Fed Funds Rate. So they need to charge more than that to make money. That’s where the spread of a loan comes in and why auto loans and mortgages are above the Fed Funds Rate.
Then again, this was from Bloomberg this week:
As interest rates soar on seemingly everything except deposits, banks are scoring big profits on the widening gap between what they charge borrowers and pay to savers.
(I don’t know why, but I guess it’s because it comes out first)
They’re all wrong in their unique way.