Bank accounts vs. Govt bonds in light of the Guarantee

[McLovin]

Trying really hard to not to not giggle after realising you understand the highly levered nature of these balance sheets and yet you claimed earlier "they have strong balance sheets".

I'm getting a little tired of the condescending tone, so I'll leave you to it...

 

[Tyler Durden]

Hi Julia,

My guess is the rates seem low to you because you are used to seeing bank rates, i.e. the compensation of risk for you loaning money to the bank. Since the risk of loaning money to the Gov is much lower, the compensation is commensurately lower.

Compare 3m AUD LIBOR (polled interbank lending rate) vs 3m AUD Gov bill (known in the US as TED spread).

I see, that's a very good explanation. But I wonder, why would anyone buy gov bonds then? I mean, it sounds like you really gotta believe that a bank collapse is a reali likelihood to do it for the lesser returns.

 

[Starcraftmazter]

In my view one would have to be super lazy not to not be able to find investments with a higher ROI that are at least somewhat subjectively just as safe. Hell even gold is better than governments bonds imo.

Why hold your life savings in worthless paper issued by a worthless government that can't do anything right?

 

[Starcraftmazter]

I was just thinking more about this, presumably you mean longer dated bonds? Then aren't you taking a direct position on the yield of our government's bonds?

Take 10 year for example which yield about 200bps lower than long dated term deposits, there is no way in hell that the yield will not skyrocket during these 10 years. Unless you want to take the position that we really do have a great economy.

If you mean short dated bonds, then what is the point??? I just don't understand

Unless you imply to have millions upon millions of capital that you wish to park safely somewhere? Do you?

 

[sinner]

I see, that's a very good explanation. But I wonder, why would anyone buy gov bonds then? I mean, it sounds like you really gotta believe that a bank collapse is a reali likelihood to do it for the lesser returns.

Either that, or you really have to wonder, just what those banks are doing to get that extra yield? We are so far past the old "borrow for 3%, loan for 6%, golf at 3pm" banking model. Look at all those Germans and Brits who chased yield in Icesave for example.

In my view one would have to be super lazy not to not be able to find investments with a higher ROI that are at least somewhat subjectively just as safe. Hell even gold is better than governments bonds imo.

Why hold your life savings in worthless paper issued by a worthless government that can't do anything right?

The discussion is just about AUD denominated savings, that is all. Nothing to do with gold or other investments (which I hold). It isn't a bad idea to have one or two years worth of living expenses saved up in the local currency to pay emergencies, or if unemployed rent, bills, taxes etc, where do you put it all? In an online account which would have collapsed 4 years ago without a Government guarantee? Come on. Why would I put it in gold when the Government and my landlord don't accept gold? Why would I put it in equity and risk a nominal capital loss?

I was just thinking more about this, presumably you mean longer dated bonds? Then aren't you taking a direct position on the yield of our government's bonds?

Only if you sell before maturity.

If you mean short dated bonds, then what is the point??? I just don't understand

The point has been repeated over and over, and obviously escaped you. Nevermind.

Nobody who invests in term deposits holds all their money at a single maturity, the best play IMHO is to have it spread across the curve.

 

[Starcraftmazter]

The discussion is just about AUD denominated savings, that is all. Nothing to do with gold or other investments (which I hold). It isn't a bad idea to have one or two years worth of living expenses saved up in the local currency to pay emergencies, or if unemployed rent, bills, taxes etc, where do you put it all? In an online account which would have collapsed 4 years ago without a Government guarantee? Come on. Why would I put it in gold when the Government and my landlord don't accept gold? Why would I put it in equity and risk a nominal capital loss?

I agree 100% with you, but then would you not want to have that money in term deposits that yield higher than 10 year bonds?

Do your living expenses exceed $250,000 for 2 years?

Only if you sell before maturity.

But doesn't that defeat the purpose of having emergency money - ie. what happens if yields suddenly jump and you need that money at that same time?

 

[mazzatelli]

Interesting sinner

My salary is denominated in EUR, so never felt the same "security" over there as with people here in re. to banks.

If you do carry this out, I am suspecting you plan to spread the bond holdings over the term structure? Duration hedged with exposure to convexity?

 

[Wysiwyg]

and as we know, the herd usually proves to be correct ...

Well, the shepherd usually proves to be correct.

 

[MrBurns]

I just found out the Govt guarantee is now down to $250k from Jan 2012, don't know how I missed that.

Anyone in here feel strongly enough about the risk to split their deposits ?

 

[Julia]

I just found out the Govt guarantee is now down to $250k from Jan 2012, don't know how I missed that.

Anyone in here feel strongly enough about the risk to split their deposits ?

Yes. No reason not to spread it over several institutions when their rates were worthwhile.
I also always do multiples in TDs of $50K so if you want some of the funds inside the term, you don't lose interest on a large amount.

 

[MrBurns]

Yes. No reason not to spread it over several institutions when their rates were worthwhile.
I also always do multiples in TDs of $50K so if you want some of the funds inside the term, you don't lose interest on a large amount.

The less you put in the lower the rate though isn't it ?

I guess no point taking a risk though...

 

[Julia]

The less you put in the lower the rate though isn't it ?

I suppose it depends on what sort of amounts you're talking about. I'm sure if you are prepared to give the bank $10M for five years they'll reward you accordingly.

Apart from those really large amounts, however, I've never had any institution reduce the rate I was applying for when I've said I wanted it done in multiples of $50K.

Have you experienced being offered considerably more for a large deposit? What sort of difference on what sort of $ amount?

 

[MrBurns]

I suppose it depends on what sort of amounts you're talking about. I'm sure if you are prepared to give the bank $10M for five years they'll reward you accordingly.

Apart from those really large amounts, however, I've never had any institution reduce the rate I was applying for when I've said I wanted it done in multiples of $50K.

Have you experienced being offered considerably more for a large deposit? What sort of difference on what sort of $ amount?

Never tested the lower amounts but anything over $500k they seem to refer to Treasury for the best rate, guess it doesn't really matter the difference is probably incremental.

 

[Julia]

I doubt they refer to Treasury, but yes, they'll ask the appropriate division of their Head Office if they can do a higher than advertised rate. I've never found more than about 0.5% improvement which to me wouldn't justify not using the smaller multiples.
What does work sometimes, depending on the bank's needs at the time, is getting them to match what is being offered elsewhere. It worked for me with SUN when WBC was offering 8% but only on personal accounts, not SMSFs, and I asked SUN if they would match it, though their advertised rate was more than 1% below that.
The phone call to head office happened and it was an immediate yes answer. I'd be very surprised if that were to be replicated now when banks are far more replete with deposit funds.

 

[MrBurns]

I doubt they refer to Treasury, but yes, they'll ask the appropriate division of their Head Office if they can do a higher than advertised rate. I've never found more than about 0.5% improvement which to me wouldn't justify not using the smaller multiples.
What does work sometimes, depending on the bank's needs at the time, is getting them to match what is being offered elsewhere. It worked for me with SUN when WBC was offering 8% but only on personal accounts, not SMSFs, and I asked SUN if they would match it, though their advertised rate was more than 1% below that.
The phone call to head office happened and it was an immediate yes answer. I'd be very surprised if that were to be replicated now when banks are far more replete with deposit funds.

They call it Treasury but it would be internal no doubt, I really feel like taking the plunge into shares instead of just letting it languish in a TD...I've done so well out of TLS, but I don't think it's the right time......but is it ever ?