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I've heard anecdotes about high-interest savings accounts (4.5% around 2006, even 8% in the 80s), that were opened when interest rates (federal funds rate) were high. The implication seemed to be that for some of these accounts, if one were to hold these accounts open, they'd still be getting the same rates after all these years. Do I misunderstand, or is this actually possible?

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    Look for long running bonds. With 30-year treasuries you could have earned 14% for 30 years once. macrotrends.net/2521/30-year-treasury-bond-rate-yield-chart – Trilarion Nov 6 '18 at 10:09
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    @Trilarion note, though, that bonds are almost always callable. This means that -- once interest rates dropped -- companies were more than eager to issue new bonds at the lower rate with which they retired the old, high-rate bonds. – RonJohn Nov 6 '18 at 13:25
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    @Trilarion It would also be beneficial to mention that bond rates usually reflect mortgage rates for the period in question. freddiemac.com/pmms/pmms30.html. Since I've already bought a house, I am very eager to see those rates to sky-rocket again! Pretty please Mr./Mrs. Government :-) – MonkeyZeus Nov 6 '18 at 15:46
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    The problem with this as an investment strategy is that high interest rates usually occur in times of high inflation, so equal interest payments are worth less, year by year. In the long term (>10 years) this effect can be severe. – alephzero Nov 7 '18 at 11:19
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    @RonJohn "bonds are almost always callable" I work in fixed income. I don't think this is true. – xiaomy Nov 7 '18 at 16:00
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Flexible savings accounts are almost all variable interest, meaning the rates go up and down with market rates. The reason for this is that if they did not, people could pay into the fixed interest ones when rates elsewhere were low, and take money out when rates elsewhere were high (and invest it at a higher rate in other accounts), making a profit at the bank's expense.

There is a vehicle for 'locking in' savings at high interest rates. This is an account where the interest rate is fixed, but the money is also locked into it. In America these are called Certificate of Deposit (CD). In Canada they are called Guaranteed Investment Certificates (GIC). In the UK and other places they are called Term Deposits. In essence you agree to lock your money into an account for a fixed amount of time, in return for a guaranteed rate of return. (There is usually a clause that allows you to take your money out early, often with a penalty.)

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I've heard anecdotes about high-interest savings accounts (4.5% around 2006, even 8% in the 80s).

Well, you heard wrong (g). In 1980-81 the Fed Funds rate peaked at 17.36%. Taxable money market funds were paying over 17%. Short term CDs were over 18%. The 10 and 30 year treasury bonds were over 15%. Baa corporate bonds were paying over 16%. Long term treasury and corporate bonds locked in these rates.

I was fairly new to the market then. A market mentor of mine had recently retired and had sold his business for $600k. He put the bulk of it in 20-30 paper and happily cut coupons at an average rate of 15% until maturity. Think about that. 15% on say $500k is a tidy income of $75k per year. Not bad at all.

  • Yes, in Australia in the late 80s the short term money market was returning 19%. "Cash is king" was the order of the day. – Peter K. Nov 5 '18 at 23:30
  • I remember having a basic savings account that returned over 5% in the 80's. – Rocky Nov 5 '18 at 23:34
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    I had a money market account paying 16+ percent while carrying a 3% college loan. I was in no hurry to pay that off :->) – Bob Baerker Nov 5 '18 at 23:41
  • Even long-term CDs payed around 17%. Savings and Loans that issued such paper were under sever stress when rates subsequently dropped. – RonJohn Nov 6 '18 at 13:22
  • I haven't seen (g) in a long time. Aside, are you accepting students? – horse hair Nov 6 '18 at 20:47
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There is an element of truth to this, but not in savings accounts. When I was very young, some family members bought a small amount of Savings Bonds issued by the U.S. government which at the time were offering in the vicinity of 9% interest. Twenty years later they were cashed in to help pay for my college education - a shame really considering they would have continued paying this for another (IIRC) twenty years, but in the grand scheme of things it wasn't a huge amount of missed opportunity, as the cashed in amount was somewhere around two to three thousand dollars.

There are similar investment strategies you could pursue. They all revolve around the idea of locking in an interest rate in long term debt obligations with a debtor with very low risk of default. The U.S. Savings Bonds example is an outlier because they pay interest for a much longer period of time and don't "mature" in quite the same way as typical bond issues do.

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That depends on the contracts you have and probably also in the country, related with available products.

In Germany, we have "Bausparverträge" (building saving contracts) where we pay a certain amount per year to save up some money. After reaching a certain threshold, we qualify for a loan at an interest rate defined on signing the contract (but are not required to take the loan).

When you signed such a contract in a period of high interest, you have this high interest even nowadays. For examples, my two contracts from 2007 and 2013 both still come with an interest of 3%, without risk of the market. Compared to that, normal saving accounts offer in the range from 0.01% to about 0.5% (or 0.9% if you are lucky).

The downside is that if I urgently need the money, the contract and its benefits are gone.

Long story short, yes, it is possible to lock in a high interest rate if you choose the right product.

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    "Treaty" is the wrong word in English. (It means an agreement between sovereign states or international organizations.) I think you are translating "der Vertrag", which in this context would be "contract" or more generally "agreement". – Martin Bonner Nov 6 '18 at 9:27
  • I have one of those, and recently my bank told me they need to increase the administration fees because they are making a loss with the high interests. – Paŭlo Ebermann Nov 7 '18 at 0:46
  • @PaŭloEbermann Same with me, but the interest still outweighs the (IIRC) 12 € per year they charge. – glglgl Nov 7 '18 at 9:57
  • @PaŭloEbermann google around a little, banks have tried a lot of those over the years to get out of those contracts. Many of those tricks were later subject to court rulings against the banks. That might well be one of those, in which case you'd have to act, but it could make you quite some money. Making a loss on a contract in itself is no reason to unilaterally change the contract. – DonQuiKong Nov 7 '18 at 9:58
  • @DonQuiKong I already learned about this fact, but too late to act. (They gave me some weeks to protest, but I thought in this case the contract would be gone. Instead, it would have continued without that fee. Now, it is too late to act on it. But these 2 × 12 € per year won't kill me.) – glglgl Nov 7 '18 at 10:01
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Savings accounts generally aren't for fixed amounts. There have, however, been special promotional offers for accounts with fixed interest rates. I think that has become rarer, and certainly finding one with an interest rate of 4.5% would be unlikely to say the least.

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