earn more interest on escrow

[chadwhitacre]

Came up with @bryynsound IRL, and picks up from #279. We have ~$75,000 in escrow right now, split about like this:

• $65,000 in Balanced.
• $6,000 in New Alliance Federal Credit Union.
• $4,000 in PayPal.

Our escrow is growing by about 7% per week. Neither Balanced nor PayPal bear interest. New Alliance bears a paltry 0.10% APY. We have a checking account at Ally for operating expenses (it's funded from the Gittip account on Gittip), and we could easily open a savings account there that would bear 0.87% APY. We might even consider keeping a portion of escrow in a CD, which could earn up to 1.60% APY.

The point here is that this is _guaranteed_ interest, so there's no reason not to do it (right?).

Since payday proceeds in three loops, and we are guaranteed that the amount we need to payout during payday will have been pulled in earlier in that same payday (pending further complications such as #113 and #1486), I believe we can comfortably keep zero escrow in Balanced, so our spread right now would be something like this:

• $0 in Balanced.
• $71,000 in Ally Savings.
• $4,000 in PayPal.

We need to keep a nominal amount in PayPal because it takes days to transfer money from Ally to PayPal and we want to be able to do MassPay promptly each week. I've been keeping about 2x our largest MassPay to date (~$2k), on the supposition that our next largest spike won't be more than 2x our last largest (should we go to 3x or 4x for safety?).

Some things to do with interest:

• offset chargebacks (deal with first chargeback #1808)
• fund a community chest (implement a basic income #84)
• fund operations

[chadwhitacre]

I've set up a second account at Ally, an "online savings" account. The APY is 0.87%, and we get up to six withdrawals per month for free ($10/ea beyond that). We do more than six withdrawals per month from New Alliance, because that's how we get money over to PayPal and Coinbase, as well as Balanced pulling their fees back. So the Ally savings account is not suitable for week to week escrow. Here's the structure I'm considering:

• Balanced - We need to keep enough in Balanced to handle the case where one or more people finally add a bank account after using Gittip for a while (year or more) and accruing a significant Gittip balance. Looking at withdrawals, the biggest week over week spike I'm seeing is about 5x (week 38 to 39), and that's when we were much smaller, so a single new large payout had a major affect. I propose that we keep 7x the current week's withdrawal in Balanced. Today that's $39,802 ($5,686 withdrawn in week 91).
• New Alliance - The remainder over 7x current withdrawal should be sent to our main escrow bank account. From there we connect to Balanced (we also still have a trickle coming in from Stripe; retire stripe #173), PayPal, Coinbase, and Cold Storage. We need to keep enough in here to fund PayPal and Coinbase. We should keep an amount equal to whatever we have in PayPal. That way we can fund PayPal as needed, and we can also float Coinbase purchases (replenishing from Balanced in that case; it only takes a day for that to clear).
• PayPal - We keep a standing balance in PayPal because it takes 3-5 days to add funds, and we want to be able to run MassPay immediately after payday on Thursdays. The same sort of consideration applies as with Balanced: we need to have enough in there to handle spikes from new withdrawers. In fact, there's a bit of indeterminism here since we don't know what funding sinks people are going to attach when, so we don't know where exactly we need to keep the escrow on hand. We could mitigate this with a withdrawal cap; reticketed as cap withdrawals #2096. Our current max growth week-over-week is 4x, and last week we moved $2,409. However, we're nervous about PayPal freezing our funds (pay in with PayPal #63), so I think we should only keep 5x last week in PayPal. Right now that's $12,045.
• Coinbase - Since this involves a lossy currency exchange, we don't keep a standing balance in Coinbase. Instead, we use our New Alliance balance to buy btc as needed to support one-off user payout requests, replenishing New Alliance from Balanced in each case.
• Cold Storage - Whatever we don't need to keep in Balanced, New Alliance, and PayPal, that's what we can move to our new Ally savings account, to start earning a little interest. Currently we have 71,315.09 in Balanced. We want to keep 39,802 there, 12,045 in New Alliance, and 12,045 in PayPal. That means we can move 7,423.09 into cold storage.

[chadwhitacre]

This needs to end up as a policy doc on building.gittip.com.

[chadwhitacre]

I've transferred 31,513 from Balanced to New Alliance, leaving 39,802 in Balanced. Once that clears (Monday?) I'll redistribute to PayPal and Cold Storage.

[chadwhitacre]

• rebalance escrow per above
• write this up as a policy doc

[pjf]

+1 for all this. Free money is excellent.

Are interest rates in the US really that low? Or do they jump up once we start working with term deposits? (Typical .au interest rates vary between about three and seven percent.)

[chadwhitacre]

Yes, interest rates are that low. Maybe we should store some money in Australia? :-)

Closing since this is in place now.