Know of a risk-free bank a/c substitute that pays 5%

[IloveJapan]

Hello everyone,

There is no free lunch is this world, usually, but I could not resist asking this question!

I mean, isn’t it completely frustrating looking at your bank a/c knowing you will get 0.01% interest. And now this is a real issue, because Japan DOES have a certain amount of inflation these days. How much, I cannot say, but looking around me in stores, I sense that there is a vibrant inflation even if it is not reflected in the official figures.

And needless to say, the consumption tax hike is coming this year too, and that will effectively further boost prices people have to pay for various consumer items.

This means that money sitting in a bank a/c will simply get inflated away, so I am racking my brains (and yours guys) to try to figure out if there is an alternative that is:
1) Bedrock safe, i.e. guaranteed to get your money back
2) Pays around 5%, the level that I remember was all around me in childhood but now seems like a distant memory
3) Can be withdrawn at fairly short notice.

Have a nice day, everyone!

[RetireJapan]

Interesting question. I remember seeing bank accounts when I was growing up in Spain paying 12% interest.

Of course inflation was quite a bit higher then too...

If a product meeting your three tests exists I would be tempted to put our cash reserves into it

[adamu]

No. I'm pretty sure you're not going to get rates like that without some serious catches. It's just the current market.

The rates being what they are, means that you should look at it as an expense to keep cash around. Is the cost of keeping your cash worth it?

For me, I keep a large cash buffer, and I justify the loss of returns by treating it as an insurance policy that means I won't have to move out of my house or sell stuff in an emergency situation.

Anything over the cash-buffer gets invested in riskier but probably more rewarding assets (broad market index funds). I can do this with confidence knowing that I have a healthy insurance policy in the form of the cash savings.

I did play around with term deposits - but again you have to be honest why you're keeping the cash. If you have to wait a week / month / six months / whatever to get at it, is it fulfilling its role as liquid savings? I think you have to just take it on the chin. This is the same reason people buy bonds with negative interest rates - sometimes an asset that costs you can still be more valuable for its diversification / insurance benefits than putting that money into riskier assets.

[ricardo]

Hello everyone,

There is no free lunch is this world, usually, but I could not resist asking this question!

I mean, isn’t it completely frustrating looking at your bank a/c knowing you will get 0.01% interest. And now this is a real issue, because Japan DOES have a certain amount of inflation these days. How much, I cannot say, but looking around me in stores, I sense that there is a vibrant inflation even if it is not reflected in the official figures.

And needless to say, the consumption tax hike is coming this year too, and that will effectively further boost prices people have to pay for various consumer items.

This means that money sitting in a bank a/c will simply get inflated away, so I am racking my brains (and yours guys) to try to figure out if there is an alternative that is:
1) Bedrock safe, i.e. guaranteed to get your money back
2) Pays around 5%, the level that I remember was all around me in childhood but now seems like a distant memory
3) Can be withdrawn at fairly short notice.

Have a nice day, everyone!

The alternative would be a fund of shares paying dividends. Doesn’t meet any of your three tests, though. Nothing will.

[eyeswideshut]

There is nowhere that I am aware of that pays any interest on JPY deposits; either in cashing or in fixed term deposits. This is the case both in Japan and overseas. However, if you are willing to (a) take the currency risk and (b) forego the government deposit insurance, banks will over fixed term deposit rates on US$ savings of anywhere from 1.5% for short term up to 2.5% pa for longer term deposits. Riskier currencies offer higher rates (South African Rand for example). If you have access to overseas banking than overseas banks generally offer around 2.5-3% interest for 3-6 month USD deposits (but there will be tax issues in Japan as you will need to declare that income - J-banks will do it for you).

So the bottom line is that Japanese savers really have no good options for parking their Yen. This is why I keep a lot of my money in USD (also I worry about JPY's viability as a long term currency but that is my own paranoia and there is no need for you to share it).

[OwenM]

I notice many banks are offering 10% (7.96% after tax) on dollar time deposits at the moment. I wonder what people's feelings are on these. Given the currency risk and lack of deposit guarantee, are these something that people on here would generally avoid?

[TokyoWart]

I notice many banks are offering 10% (7.96% after tax) on dollar time deposits at the moment. I wonder what people's feelings are on these. Given the currency risk and lack of deposit guarantee, are these something that people on here would generally avoid?

All of these offers that I have seen were for such short periods of time that I couldn’t see the point. Do you know of any for longer time duration than a couple of months? I would actually jump at an account that offered that yearly rate for 6 months or more because that would work fine for at least half my emergency fund.

[eyeswideshut]

I notice many banks are offering 10% (7.96% after tax) on dollar time deposits at the moment. I wonder what people's feelings are on these. Given the currency risk and lack of deposit guarantee, are these something that people on here would generally avoid?

In Shinsei's case, I think the ultra high interest is only for the first month, thereafter you are rolled over at the standard rate. The explanation on the website is a bit deceptive. Also, the rate only applies to new deposits that are converted from JPY to the target currency. Shinsei is clearly making their money back on the Forex fees they charge.