Why You Should Never Save Your Money In A Bank Account

Savings accounts are awesome? they are risk-free, easy to use and give you a sense of security that you associate with banks. They are also a sure-shot way for your money to lose value over time.

Losing value? I get interest on what I save!

Sure, your money is growing slowly in the account at an average rate of 4% every year without you having to face any risks. But is that 4% enough to keep pace with the rising prices? Not really.

As per the reports of the Ministry of Statistics and Programme Implementation (MOSPI), in the last 3 years, Inflation in India reached a high of 11.16% in November 2013 and a record low of 3.66% in August of 2015. On average, prices have been rising at a rate of 8.14% every year for the last 3 years.

On the face of it, 8.14% may not seem too bad to you. Something that costs you Rs 1 lac today, will cost you only Rs 8000 more next year. But think of it in the long term. With compounding effects, the price will grow into a monster you may not be able to handle.

Never Save Your Money In A Bank Account

Let’s look at some real numbers that will help us make the point.

The Consumer Price Index (CPI) is a price indicator that tells us how much a typical basket of goods would cost for a household. In 1995, the CPI was 37.992, while in 2015, the CPI is 145.642. It means that goods worth Rs 1,00,000 in 1995, would cost Rs 3,83,349 in 2015.

Now, if you had kept Rs 1,00,000 in the bank in 1995, it would have grown only to Rs 2,19,112 in 2015, assuming the average interest rate of 4%. This means your money was growing at a slower rate than the prices outside. So, from a practical person’s point of view, your money has lost value sitting in that savings account.

Beyond the Savings Account

Seeing how money in the bank means less and less over the years, we think it’s time you start educating yourself about other investment methods. You should be looking at ways that will not only grow your wealth over time but will do so in a manner that safeguards you against rising prices.

Beyond the Savings Account

If you had taken the same 1,00,000 and invested in equities in 1995, assuming a 10% annual return (historical evidence), it would have grown to a staggering 5,60,000. This not only beats inflation but increases your wealth.

Members of your family still stick to their savings account, don’t they? Help them out by sharing this article with them. You owe them that much.