Losing Your Money on Savings Account

You might be thinking that I was crazy when I tell you that you are losing your hard earned money in your savings account. Literally speaking, you are not losing any amount of money in your savings, but instead you are losing its purchasing power.

Actually, the silent inflation slowly crippled the buying power of your money in savings account. And, what is this so called inflation? In economics, Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.

How does inflation affect the purchasing power of your money?

Example:

You have put 1000php on your bank savings account with an awesome interest of 1% per year. And let’s say this same amount could buy a sack of rice.

After 1 year, your savings account yields 1% interest and you are happy to see that it grows from 1000ph to 1010php. But wait, here’s the 4% inflation coming, and the sack of price is now selling from 1000php to 1040php.

Do you think your 1010php could still buy a sack of rice? Of course not, right. It’s sad to think that after a year the purchasing power of your money was reduce. Even your savings account yields annual interest, it still could not run neck to neck with the inflation.

So now you might be asking that “Is it wise to put your money in a bank savings account?” Of course, the answer is “YES”. However, we should put only a reasonable amount that we can use in case of emergency.

What is the right amount to keep on your savings account?

For me, it is good to keep at least 6 months of emergency fund to your savings. Then park the rest of your money to any investment vehicles that yields higher than the inflation.

Quotes:

How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case. – Robert G. Allen

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