Leaving Your Money in the Bank? You’re Losing It
Money saved is money earned, they say. A person works with all his will, whatever their job may be, and then looks to put aside some money for emergencies, and of course, for their goals, after covering all the regular expenses. What people usually do is they look for a bank that would provide them an interest on the amount they put in, eventually added to the sum annually. This is the general tendency with human being – because there is no risk and therefore, it is safe, so why not just leave it with the bank? Plus, the annual interest addition becomes the icing on the cake. That is how an ordinary earner would deal with his money.
But what would a smart earner do? Smart earners always have a knack for creating savings from the day they start having sufficient money. And not just savings, earnings from savings, much more than what a bank could ever provide you. For them, putting money in the bank is comparable to losing its derivations, or simply losing it. But why? Let’s take a look.
The common question with savings
Why isn’t Bank the right place for your money
The bank draws customers with one primary attraction – interest rates. Sure, superior customer service and other add-on features differentiate bank brands, but if any of the banks were to stop offering interest on deposits, many customers would probably close their accounts.
Whether it is interest on loans or savings account, this is a major aspect that a bank can ultimately attracts customers with. For a person who looks to enhance his savings through a bank, the interest rates are highly important. If the interest rates are high, the returns on the amount that they put in the bank would be high, hence, the savings would go higher.
But this is unlikely to happen.
People wrestle with inflation rates globally – and in India they’ve been a particular problem. What these rates represent is the rate of growth of prices of products that any consumer can buy. These can be of all kinds – from vegetables to fuel. If inflation is high, people have less disposable income – since they’ll be spending *more* for the same items. Consequently, banks tend to lower the interest rates so that more and more people can borrow money. It is necessary to understand that the main source of income for a bank is from lending money. Hence, the more amount of money the bank loans, the more it earns. This is because, the interest rate levied by the bank over loans is much higher than the interest provided by banks on savings accounts. If the interest on loans is lowered, so is the interest on savings. Therefore, there is no point of high returns.
In this state of affairs where inflation is high everywhere, it is actually advisable to not to put your money into the banks. You think earning 4% on your deposits is a decent return? Not if the inflation rate is higher than 4% (which it was, for a large part of the last decade!) – in such case you’re actually losing money, and are living in denial!
Here’s a simplified example – say you earn Rs 1000 a month, and spend Rs 500 on basic necessities. You therefore save Rs 500. At a 4% bank interest and 5% inflation rate – your bank deposit will go from Rs 500 to 520. But thanks to inflation, your basic necessities will now cost 525. You’ve lost money here!
Even if inflation were at par or slightly lower, it should be obvious here that’s this is bad deal. The bank’s interest, therefore, is just a waste of time and opportunity to increase your savings. But what is this opportunity that we are talking about?
It is now certain that putting your money in the bank is not the best way to earn. Now that we understand that inflation is high, shouldn’t we put our money in something that beats it? High inflation rates indicate that the prices of products in the market are high. If you’re looking to put money into a place where they could get high returns over their savings, look at investments.
Strategy + Capital = Investment
Investment, in the strict sense of the word – can be defined as an item or asset that has been purchased with the hope that it will generate income in the future. For your savings, in the financial sense, an investment is a monetary asset that could generate income or could be sold at a higher price to generate profit. Such investments can be a variety of things – the stock markets, funds, bonds, real estate, or more recently – the rapidly expanding P2P Lending industry. But investments are not limited to just these. The situation and circumstances of a person largely affect how and where they can put their money to make it increase further.
Once a person invests money in a product, more money can be made from it following different investment strategies. The general strategy used is patience – with real estate, it may long term patience. With P2P lending – it may be the advantages of fixed monthly returns.
Conclusively, it is obviously better to channel your savings into investments. Banks will likely never be the places to look for higher returns. If you’re leaving your money in the banks, you are losing it!