Wednesday, December 6, 2006

Savings Account

I opened an account with ING Direct on Tuesday night. I got a little flyer thing from picking up the notecards in Calhoun's class. He was providing them for all of his students. The deal was that if you open an account, they will put $25 in it. Not bad...especially considering that it pays a risk-free 4% interest rate. I guess the catch is that it's an online bank and you can't walk into a branch and take your cash out. Instead, you must transfer it to a "linked" checking account; such a process could take a few days. Neil suggests that it's better to have a savings account set up that way because then you can't just get money out right when you want it (and end up blowing it on trivial stuff).

I ganked a flyer for Neil too. He thinks he's going to open an account up. I don't know how they're hooking people up with $25. Sounds good to me. I did read the fine print, and it's cool. There are no fees. Ever. No minimum balance. Seems perfect.

I plan to use it as a pure savings account, as opposed to my "savings account" that I currently have that just serves as a holding tank for money I'm going to pay bills with. Who knows what this money will eventually be used for? I would like to be able to set aside about 5% of my income or better for this thing.

Disclaimer: economics follow.

I wonder what that says about my intertemporal elasticity of consumption. Imagine an Euler equation that's not done one period after the other (forget about a dynamic program). My marginal utility of consumption for the cash I deposit every period must be equal to its present discounted value at every future period. When I withdraw the money, t periods in the future, you have beta^t times {that period's (marginal utility of consumption)...how the fuck am I going to know what that will be??? times (accrued compound interest on the period's deposit + the deposit itself)}.

You want a distortion? Figure out how much tax I'm going to have to pay on the interest. Does that make me less likely to hold this position? Well, my money could instead go to: pay bills, buy fun stuff, other savings accounts, CDs, stocks, bonds, foreign currency...some of that stuff yields at a known rate and others at a stochastic one. Different taxes for different holdings.

I think that the biggest reason to make this choice is that I get utility from knowing that it's there. I've been wanting a pure savings account for a while. Maybe I'll get utility from making a deposit, knowing that it will grow over time, or that I'm able to get by today without using all my income (I don't think I'd spend all my cash holdings every period).

Enough of that. If you want a promo code, let me know and I'll see if Calhoun can hook one up.
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