SHOULD YOU SAVE IN A BANK?
Written by redbalmeo on 5:33 AMThere are a lot of people – including me-- who are looking for ways to get rich. The good news is we can also find a number of articles, web sites and materials claiming that if you follow their steps, you are on your way to financial independence.
Although these materials present various ways of attaining financial independence, they all agree on one thing ---we must save what we earn. Some people however think that it’s the end of the story; when you save, you will get rich. Little do they know that it’s just the start of the story; a mere slice of the cake. The next thing we should concern ourselves with, is where to put the money. The most popular answer – “the bank.”
I beg to differ. Banks are not the right place to invest your excess money. I am not against banking. In fact, I have four bank accounts, but I only use it for convenience. You can have your money in ATMs as a convenient and safe way of carrying your cash. You can also have a regular bank account or checking account where you can put your money (not for investment purposes) for your daily needs and to support expenses and money that are necessary to run your business if you have one (which should be readily available when you need it).
Banks are not the right place to grow your money. The going interest rate of banks range from 1% to 3% per annum (average for Philippine Banks), while inflation rate (rate of price increase of commodities per year) range from 5% to 7% (Philippines— rate as of writing).
What does that mean? So what if inflation is higher than the interest rate? Well here’s the equation, the value of your money decreases due to inflation.
Example:
You have 100,000 to save. You chose to save it in the bank. Let’s say the inflation rate is 6% and interest rate is 3% (exclusive of 20% withholding tax).
At the end of year 1, your money in the bank has earned interest of 2,400 (100,000 x 3% = 3,000 minus 20% withholding tax)
You are glad, that without doing anything, your money has grown to 102,400. But wait, it’s not the end of the story yet. Remember inflation? Yeah, the decrease in the value of your money –so the real worth of your money after year 1 is 96,256 (102,400-6%). It’s not too long that you will lose all your hard money through inflation.
Now you must have gotten the point, you must earn an interest higher than inflation rate. If banks can give that, go for it. By the way, there are also special products that bank offer that promise high returns – ask your bank about it.
Banks are not our enemy –its inflation
Please visit the investments section of this site to know more about investment products that offer high returns that suit your needs.
| Posted in »
0 comments: Responses to “ SHOULD YOU SAVE IN A BANK? ”