This is a frequent misguided criticism. The job of central banks isn't to ensure that savings accounts have a high rate of return. They're not robbing virtuous savers.
It is the nominal rate of return which we are talking about too, which means that the rate reflects the low rate of inflation. An increase as a result of inflation would amount to no long-term gain for savers.
Real returns result from real investments, not fluctuations in the money supply.
There lies the problem. Real investments aren't made, unless pushing the price of housing stock to extract more from renters and to-be homeowners, as well as stock buybacks in large corporations, are the "real investments" central banks are preferring.
Although that is what is happening, I think it will take quite a while for people's investment profiles to change.
Right now there are people that think "I can't keep my money in the bank without it loosing money, let alone keep up with inflation, what am I supposed to do put it under a mattress!?"
It will be quite a while before people become corporate bond investors as commonplace (which would put money back into the economy).
In Switzerland, for example as a nation of savers, the corporate bond market has basically dried up. Because even higher risking bonds have too low yields to be attractive for the risk. (Although the Swiss National Bank hasn't prompted bank savings account interest rates to go negative.. yet).
As someone who has been burned several times by the stock market and supposedly safe index funds, I have no idea where I would put my savings (if I had any substantial amount). Stock market / mutual funds have a high risk of loss. Bank accounts will not grow (and will lose eventually due to inflation). Inflation-adjusted savings securities seem like the best bet, but they won't grow. There's no safe return anywhere anymore.
>As someone who has been burned several times by the stock market and supposedly safe index funds...
I'm curious to know what this means. You can only get "burned" in index funds if you pull your money out when the market is down. Are you investing money you need to pay the bills?
Bad timing. I'm sure the stock market is fine for people with an infinite time horizon, but I no longer trust it as a place to park savings for 5-10 years that you want to grow in order to buy a house or spend on grad school.
You are not alone. If you look at the "target retirement date" funds Vanguard etc. run you'll see that by the time the target date is 5-10 years out they have shifted largely to bonds to provide defined income.
Sounds like you need better advice. Most advisors will tell you that 5-10 years isn't quite long enough for the risks of stocks to pay off. Sounds like you wanted medium-term bonds instead of stocks!
Just means your risk profile is too low. As detailed earlier, the central banks literally don't want you to do the things you were considering doing. Their distortions of the market are not arbitrary.
They want you to make private equity investments (the ones that don't come with hundreds of pages of disclosures), they want you to buy corporate bonds.
They want you to do things that actually put money back into the economy, and give a potentially higher return with a higher risk of loss.
The line between investing and gambling has always been a social construct. You hop into derivatives and even the "positive vs negative expected value" distinction falls apart.
There never was any safe return anywhere. It was all an illusion. Even US government bonds carry some risk once you account for black swan events across a sufficiently long period of time.
Does this mean I'm better off not having any money in a savings account (except perhaps 1 month's expenses or so) and putting that money in stocks and bonds? I've been thinking recently of moving (part of) my 5-month emergency fund to intermediate term muni bonds (VWITX specifically). But I'm not sure if that's a good move.
IANAFA (not a financial advisor :P), but it really depends on your goals and risk tolerance. Sure, interest rates are low but so are inflation rates. Sitting on cash isn't as bad as it used to be if you want instant-access to dollars. If you don't need that 5-month-emergency-fund to grow, you probably don't need to put it in riskier vehicles. I believe putting that fund in VWITX would still give you quick access (on the order of a day or two) to if you needed it. You should look at the size of the fund and weigh the risks: definite loss due to inflation over N years, or the small risk-reward spread of medium-term bonds (i.e. they will probably grow, and you'll be earning interest, but there is a chance you'll be forced to sell at a time when bond prices have dropped).
