Death of the Savings Account

I originally posted the following to Facebook on July 29, 2020:

Do you have a savings account? Many people consider it wise to have one, as you can earn interest on money that you intend to put aside. But with the average savings account interest rate currently at 0.1%, it’s only barely better than a piggy bank. Then, if you consider the Federal Reserve’s targeted inflation rate of 2–3%, your savings actually loses purchasing power each year.

It hasn’t always been this way. Historically, savings accounts would often earn rewards at least a bit better than the inflation rate. When you earn interest, where does that money earned come from? Or, how can a bank afford to pay you money simply for the privilege of hosting your savings? It’s because the bank takes your money, along with the money of other savers, and either loans it out or buys treasury bonds earning even more interest for themselves. Today, they might earn 8% interest on a loan and then pass only 0.1% of it on to you. Don’t spend it all in one place now!

So, why do you trust the bank to safely hold your savings? In America, we’re extremely blessed to have access to a pretty secure banking system. But, if you lived in Yemen, would you risk your money in a bank that could end up becoming a missile crater from a shot fired by an American/Saudi drone? In most developing countries, every generation at least once experiences some sort of national event that wipes out their entire savings. You’re not as at risk of that in America, but you’re also not immune to it (especially during times of extreme uncertainty).

What if currency had an infrastructure built into it that could remove the middleman banker and allow you to collect the full interest on your money with the simple click of a button? What if this currency was available to you as well as that poor Yemeni that can’t trust traditional systems?

Such things are being built. Such things will blockbuster the dollar and the yuan.

December 2022 retrospect

Inspiration from this post came from seeing the progress of Web3. This year we’ve seen many centralized crypto firms blow up, while transparent Web3 institutions have avoided the cascading contagion. Government is very much trying to put the breaks on crypto with new regulation, but I feel that’s completely unnecessary — as these truly decentralized platforms in Web3 are faring just fine.