Quote:
Originally Posted by retiredguy123
I don't know what you mean by the private interest rate market, but the Fed seems to have a huge effect on the interest rate for money market accounts, bank CDs, and private bonds. When I retired, I was making substantial interest on my money market account until the Fed started reducing interest rates. Then the interest rate went almost zero.
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your account of what happened, fact check: TRUE
in the interest rate bond world:
public debt = also called govt debt, are treasuries, govt agencies, municipal bonds
private debt = public and private company debt, private equity, financial institutional funds
In the equity world:
public companies = public ownership with investable with tradable stock
private companies = non publicly investable with no trade le stock
read up on the NFL opening the ownership to PE firms.
NFL is currently a private company, owned by the team owners.
Some of the owners have sold
but the money market account is not run by the fed, but is run by a private, non govt entity.
the money market invests in short term debt, mostly treasuries, but there are other short term debt instruments which yielded more return, which other similar short term funds can invest in.
The reason why bank run savings accounts get only a small amount of interest, again, privately owned short term account, is due to the limitations of its range of instruments in which the fund can invest for its advertised return and liquidity. savings accounts can absolutely get a higher interest rate if the bank wants to attract the money, as the spread is very wide.
instead of money market account, the better choices with high liquidity and competitive interest rates are Bond ETFS
BIL invests in treasury bills and its current dividend rate is approximately equal to the 3-6 month treasury bill interest rate. Liquidity is a bit less, meaning you can't get your money until the next day if you sell, versus a current day money market fund, which has to hold a portion of the total assets in cash for redemptions, which reduces the net interest earned to you. BIL is currently giving about 5% annualized in distributions.
in addition, BIL distributions are considered dividends and are taxes at different rates than true interest rate accounts. win/win
there are also similar ETFs with corporate short term debt, rated AAA, and you get higher still distribution rates. .
It pays to look around for yield in addition to bank accounts. One can also set up automated transfers of cash received from investments to checking account, which gets you just about the same effect as a money money account
I just took about 100K of cash in my dad's estate and invested in
50% BIL @5% short term treasuries
40% MBB @ 4%+ govt agency debt
10% PFF @ 7% preferred stocks with dividends
estimated total annual distribution rate is 4.9%, plus capital gains with the effect of lower interest rates when they occur in that market. not worth spending time in money market accounts,