alt Hacker NewsThe banks might pay 3% interest, whereas even non-volatile conservative investments like cap notes or bonds would pay something like 7%.
Plugging it into a calculator:
1.03 ^ 18 = 1.70
1.07 ^ 18 = 3.37
Example numbers, but you're effectively taking half of the money that your kid would have had on their 18th birthday, and giving it to a banker.
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I am curious. When you put this money in kids names, do they (or we) get taxed on this? If we save on taxes, then for a person (or their child) with high income and high state taxes, the benefit of the 3% may be larger than it appears to be. Of course, up to a limit.
Yes… I also wouldn’t park money in a savings account for 18 years.
But 7% is not the risk free rate! The S&P and these other things have risk!
But show me a bond I can buy that’s paying 7% and I’ll show you below investment grade.
Truly conservative investments are more in the 3-4% range these days; money markets were running around 5% a few years back but they've come down. I have some bonds (including treasuries) that are higher than that but I bought them quite a while back. For long time horizons I'd be more weighted on equity indexes and maybe dividend-heavy stocks.
You’re not giving it to a banker, you’re trading risk for return and flexibility. One can access savings at any time, any amount. Not true with bonds, maybe if you fiddle with indices.
Also bond returns have averaged 5% over decades, not 7.
Not taking all this into account, and simply claiming bogey men took your money, is misleading.
3% is amazingly good. It’s not hard to beat that, but a savings account at a common bank can easily be below 0.05%.
I looked up BoA. 0.04%.