Ordinary savers get 0% to 2% from riskier banks while big investors get about 5% from T-bills
The retail rate comes with more risk and less reward, and technology has not closed the gap.
Joys of Compounding · Chad Cascarilla - Blockchain’s Carpenter - [Joys of Compounding, EP.26]Your savings account pays 0% to 2% while big investors collect about 5% for lending to the safest borrower of all, the U.S. government through T-bills.
Chad Cascarilla, who leads Paxos, a company that builds blockchain systems for finance, points out the backward math. Ordinary savers accept the lower rate from a bank or other institution that is riskier than a T-bill. They take more risk, and get less return.
In almost any other industry, he argues, information technology has collapsed the gap between the retail price and the wholesale price. Finance has not, because it still runs as a closed system on old technology.
He calls that leftover spread criminal.
Questions people ask
What exactly is a T-bill?
A T-bill is a short-term loan to the U.S. government, with maturities from four weeks to one year. It is considered risk-free because it is backed by the government’s ability to tax and print money. Investors buy them at a discount and receive full face value at maturity.
Why do banks pay less than the government pays?
Banks use deposits to fund loans and operations, and they keep much of the difference as profit. Savers accept it because checking and savings accounts offer convenience, safety systems, and instant access. Large investors with cash and brokerage accounts can buy T-bills directly and keep the full wholesale rate.
Can an ordinary saver buy a T-bill?
Yes. Americans can buy them directly from the government through TreasuryDirect, or through most brokerages and some bank and money market accounts. Minimums are often $100, and the interest is exempt from state and local income tax.