MyRA accounts ending

I think there has finally been some good to come out of this Administration. Treasury Secretary Steve Mnuchin has announced that the MyRA program is being shut down. That's good for the American taxpayer and neutral for the approximately 30,000 people who have these accounts, which have been available for nearly 2 years.

According to the SF Chronicle and other news sources, the bill to administer the program has been $70,000,000.  With 30,000 account holders who are earning Treasury interest rates, the cost to the government has amounted to $1,166 per account per year.

Here's an idea: If the government wants to encourage people to have IRA's, that aren't subject to the $15,000 maximum account value that the MyRA is, create a tax credit that reimburses people for the annual custodial fee of $15 to $30 that some banks and credit unions charge. Vanguard only charges $20 per year, and that only if the retirement account balance is less than $10,000. 

These are reasonable fees for custody and record keeping, and there's a good argument that investors with small balances are discouraged by having to pay these fees. A tax credit to offset that fee solves the problem, without adding yet another type of government controlled retirement program, that has only one investment choice, and requires people to leave the program anyway, after a few years of contributions.

Update on Interest Rates

Since my last post, the Federal Reserve has raised rates 3 times, so short term rates are getting closer to their long term historical rates. I think we can all agree that it is uncomfortable having money in a bank savings account earning 1/10 of 1%, when it will take at least 2% more in a year to buy the same amount of stuff, due to inflation.

In the short term, increases in interest rates hurt the principal value of bond funds. As each bond in the portfolio matures, and is replaced with one that pays the current, higher, rate, the annual income will go up correspondingly. There is a measure called "Duration" which helps measure this effect. If you'd be interested in attending an online session to learn more about this, drop me a line and let me know.