Most people think that the best way to save money is to leave their money at the bank. However, that’s not entirely true. If you’re interested in maintaining your wealth, you should consider stashing it elsewhere or investing it smartly.
While an interest rate may be low right now, many people who choose to keep their money at the bank for years without understanding how it’s draining their wealth end up with less money than they should.
Contrary to popular belief, banks aren’t keeping your money saved for its real value. So here’s a breakdown of why you shouldn’t leave your money at the bank and what to do with it instead.
Don’t worry. We won’t be telling you to stash it under your mattress unironically. So let’s get into it!
Why your money isn’t saved at the bank
To clarify, your money is not being sabotaged by the bank. Keeping your money in the bank is safer than keeping it at home or under your mattress.
However, many other factors continue to scrape off small amounts of money from your long-term savings, which eventually add up with time to give you a substantial loss. Now, let’s see these factors and how they affect your savings.
1. Inflation
The problem is that savers lose out whenever interest rates fall below the inflation rate because they receive back less than they put in.
Inflating prices are now again on the increase. Because interest rates are now so low, it‘s virtually impossible for your cash deposits now to keep up with rising prices. Your interest is taxed out at a rate of up to 30% before you see it.
Inflation depreciates the value of your dollars, which is why it is important to invest in assets that can grow in value, and we’ll talk about that later in more detail. But for now, let’s move on to the second factor.
2. Limitations of withdrawal
In addition to the fact that checking accounts usually require a minimum balance, they also often impose restrictions on how much can be withdrawn each month, so if you need to dip into that $1,000 emergency fund, it might be impossible to do so at the given moment.
Term accounts might require you to put your money out for anywhere from 3 to 7 years, which will become prey to inflation sitting there. You need to look out for bank regulations before saving at the bank.
3. Interest rate drought
When interest rates are low, it might make sense to take advantage of them. Most banks offer special promos that give you an extra percentage of your money back if you set up an automatic payment plan.
But if you’re not careful, you could lose money because of inflation. Don’t get too excited, though. Inflation is inevitable, and it’s something you should expect to happen.
Recently, savings have been subjected to a ten-year interest drought, and considering how inflation continues to rise, there doesn’t seem to be an end to it anytime soon.
Saving smarter with investments
Inflation diminishes your purchasing power if your money is kept unmoved at the bank. On the other hand, investors take advantage of inflation and make more money from their savings which otherwise would have eroded.
You might think that investments are risky business. However, not all investments instill such risks over your savings and could help you gain a steady advantage to increase them over time.
1. Short-term investments
Liquid funds provide stable funding and can be converted to cash quickly. What’s even better, however, is the tax benefits and lower expenses offered by these instruments to investors.
Investors can also beat inflation with bond funds if they have a moderate risk appetite, and the returns on ELSS (equity-linked savings schemes) and multi-cap funds over three and five years have crossed 16 percent. These funds can also help you in cases of emergency.
Another way to keep your money valuable is through cryptocurrency trades. Although such investments still have a long way to go, you can always start small and try them out to see if they work for you before making larger investments.
2. Long-term investments
Investors also benefit from inflation because they earn compounded interest on the amount of money they’ve invested. For example, if you’re investing $1,000 today and earning 5% compounded interest, after ten years, you’ll end up with $5,200.
That means your original investment has increased in value by 20%. If your bank account grows at 3% annually, then after 10 years, your money would grow to almost double what you started with!
You can also buy the stock-based index and mutual funds and invest in SIPs (Systematic Investment Plans) and ETFs (Exchange Traded Funds). Spread out your investments so that they’re focused on quality companies and lower risks.
Final verdict
Your finances are not something you can ignore. Saving a decent amount of money for your future is very important, but we cannot let inflation eat away the value of a large portion of our money.
In the end, inflation is the greatest reason you shouldn’t leave your money at the bank. To beat inflation, sound investments and low-risk strategies will help you keep your loss at bay; you might even make more money than expected.
If you’re still struggling to save money, seek expert advice on more effective ways to save money on everything and keep your finances under control for the rest of your life.
