Why keeping money in savings account is a big loss?

Why keeping money in savings account is a big loss?

Investing money in Savings Bank accounts is easiest method of investment. You have to open a bank account and deposit in your account.

Let me tell you that your investment in SB accounts is complete loss.

The biggest investment mistake you do is considering SB accounts as an investment option. Keeping a small amount for emergency purpose is advisable but never replace an investment option with SB accounts.

What is a Savings Account?

Savings Account or SB account is the most basic bank account. When you open an account with bank or post office, your default account will be SB account.

Savings account is a deposit account and very liquid in nature.Money can be withdrawn at any time and banks pay interest on average balance in SB account.

Interest rates are normally very low. On an average Interest rates on SB deposits range between 3% to 4%,.

Facts of Saving Banks (SB) Account

  1. You can open Saving Account in any bank or post office in India.
  2. You need to provide KYC (Know Your Customer) documents to bank.
  3. Banks issue cheque book, Debit Card for withdrawing money.
  4. Bank pay interest between 3% to 6%.
  5. Banks have condition of maintaining a minimum balance in SB Account.
  6. Interest rate is lowest among all forms of bank deposits except current account.

Why treating Savings Bank Accounts as investment option is risky?

We have read above that SB accounts are a type of investment. However, as per me it is the most riskiest form of investment.

I can prove it why this is most risky investment option.

What is a good investment option?

A good investment is one which helps to grow your wealth. A good investment should generate return at higher rate than inflation rate. Most important factor for selecting an investment option should be its ability to generate return higher than inflation rate.

Take an example, You want to buy a house after 10 year. Current rate of house is Rs. 50 lakhs. So you decides to save and invest every month with a target to accumulate 50 lakhs after 10 years.

Now suppose rate of return on savings is 10%, but house price increased at 15% every year. At this rate you will never be able to buy your dream house.

You should have invested in a product which generates more than 15% return.

Return of SB Account vs Inflation rate

Now considering above example, lets compare average interest rates on SB accounts and average inflation rate of last 10 years.

Interest Rate vs Inflation Rate
Year Interest Rates Inflation Rate
2000 3.40% 4.00%
2001 3.40% 2.23%
2002 3.40% 6.32%
2003 3.40% 5.86%
2004 3.00% 9.13%
2005 3.00% 11.17%
2006 3.00% 6.49%
2007 3.00% 9.47%
2008 3.00% 14.97%
2009 3.00% 9.70%
2010 3.00% 5.51%
2011 3.50% 6.53%
2012 4.00% 5.57%
2013 4.00% 3.78%
2014 4.00% 3.72%
2015 4.00% 3.20%
2016 4.00% 5.16%
2017 4.00% 3.48%
Average 3.45% 6.46%

If you look at above table showing comparison between interest rate and inflation rates, inflation rate is almost twice. If you kept your money in SB account your money will be half of its worth.

If you could buy 2 kg of something 10 years back today you will be able to buy 1 kg only.

From above table it is clear that if your money increased by 3.45% in last years then value of product you wanted to buy increased by 6.46%.

Hope this explains my point why keeping money in SB account is a bad idea.

Share your opinion in below comments.

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