posted
I have an ancient savings account in Norway that pays out a bonus every five years. The interest is low, 2.25%, but the bonus is fairly sweet: It's 25% of your original capital after the first five years, then 50%, then 75%, and a final payment of 100%. The money is bound, if you take any out you have to take it all out. I worked the numbers, and over a twenty-year period this comes to a 7% interest rate. That's a fairly good deal, it seems to me; so good that I'm not sure if the bank is making a profit on it. (I do note, they stopped offering this kind of account not long after I got mine.) What does the Hive Mind think; have I suckered the bank, or are they still somehow making money on this?
Come to think of it, if you calculate in dollars the interest rate goes through the roof. I put in 10000 Norwegian kroner in 1993, when that was a bit more than 1000 dollars. I just got the third bonus payment to make my holdings 23000, or roughly 4600 dollars. Yay for investing in oil country currencies! (Of course, who knows what will happen in the next five years before I get the final bonus.) I wish I'd been richer back in 1993, though.
Posts: 10645 | Registered: Jul 2004
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posted
Wups, typo: Holdings are actually 27000, not 23000. I can't make that fit with 2.25% and 15000 in bonus payments, though, so it seems the interest hasn't been 2.25 for the whole period. I'd better ask about that.
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posted
Around a 7% overall interest rate? Pretty good, but nothing spectacular given the withdrawal limitation. I mean, the S&P 500 has had better returns (probably even with the fees that are associated with S&P 500 indices) over most 15 year intervals, and you have much more flexible access to your money. Heck, the S&P 500 has had a greater rate of return even if you picked the 15 year interval that ended at the lowest point recently, where the drop ended in 2002. The S&P looks to get 9% or better in just about every 15 year interval.
It is nice in the assured nature of the income, but that's not much of a bonus unless the account sticks around, since unless you withdraw right after one of the five year periods the bank has definitely had one over on you, and would have one over on you even right after one if they've just been dumping your money in an index fund.
Did it stick around, it might make sense to keep some money revolving in such an account, just for the reasonable guaranteed rate of return, and hopefully by rotating you could make it so one will come to maturity in the middle of a mild recession.
So my overall assessment, given the extreme restriction on withdrawal, is that your bank is making off like a bandit, and that you can easily do better over similarly long term periods of investment.
Posts: 15770 | Registered: Dec 2001
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posted
Ah well. I was hoping that perhaps the bank had been gambling that interest rates would be returning to where they were in the eighties - middle tens, in Norway - and made a mistake. Such is life. On the plus side, if you factor in the dollar conversion it looks like I made a pretty good bet back then, putting in 1100 dollars (roughly) and getting back around 5000 15 years later. Yay for greedy Americans buying from China on their credit cards!
Posts: 10645 | Registered: Jul 2004
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posted
Certainly nothing to laugh at in returns. Probably possible to beat (with a lot more flexibility in withdrawal), but very far from guaranteed. A reasonable enough investment.
edit: and the currency adjustments are correctional with relation to that cause; if we hadn't been doing what we were (and enjoying the benefits), the dollar probably never would have been so strong vs everyone else for so long in the first place Posts: 15770 | Registered: Dec 2001
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posted
The first IRA that I bought was a three year CD with a 17% rate of return. However, the early 80"s were inflationary times here in the old US.
Posts: 1167 | Registered: Oct 2005
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Yeah, longer term investments don't pay off that well, thankfully (as it would mean rather extravagant long term inflation was expected).
Posts: 15770 | Registered: Dec 2001
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posted
Hmm. So I'm looking for a place to stash roughly 1000 dollars for perhaps a year or so. Any advice? Online savings accounts are offering me around 3%. Can I do any better? I'm willing to tie the money up, but not for more than a year.
Posts: 10645 | Registered: Jul 2004
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posted
Hmm. I found a 12-month CD for 7%, with the amount limited to 1000. Sounds almost too good to be true.
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