How to Lose Your Money in the Bank


How to Lose Your Money in the Bank
Banks are still quite a popular choice among many people. And why not? It's easy, convenient, and of course, safer.

Is it? One of the many reasons why we keep ourselves ignorant from most investment vehicles is because of our fear and lack of knowledge to understand “risks”. Remember, we all fear what we do not understand!


Without proper financial education, this fear will never cease. We fear that we might lose our hard-earned money. Yet, there were countless victims of investment and pyramiding scams.

Then there's the bank -- where we let our ignorance quietly eat the value of our savings. How is this possible? Hmm...

Meet Inflation
Inflation, in a nutshell, is the inevitable upward price movement of goods and services. So when prices goes higher, the value of money goes lower, which decreases its purchasing power.

In the Philippines, the average annual inflation rate is around 4%. Meaning, the purchasing power of your money decreases...each year! To make it graphical, your 1,000 pesos today will only be worth 960 pesos next year! You will still have the 1,000 denomination, but the value of your money will never be the same as today. Why, you ask?

Because the price of all commodities increases over time. What you can spend to buy bottled water today might not be enough to buy the same bottled water in the years to come. This is called inflation.

Now going back to the bank, where your money grows by an average of 0.75% a year; the same 1,000 will be 1,007.5 pesos after a year (well, you earned a cool 7.50 peso interest). 

But wait! The government must have its shares, too! And so the bank will deduct taxes in any interest your savings has earned. Hence, you cannot take home the entire 7.50 peso interest! 

Now, looking at the picture, you parked your 1,000 pesos in the bank, earned 7.50 in a year and yet the value of your 1,000 is now just worth 960 due to inflation. You were robbed!

Charges
Now this makes us frown a lot of times: ATM Charges. Yes. ATM withdrawals today costs 10-15 pesos if you're making a withdrawal from another bank's ATM machine, and failing to maintain the Average Daily Balance (ADB) will cost you another 200 or 300 pesos, depending on your bank. Talk about robbers.

What is a good investment then?
A sound investment, as financial experts would often suggest, is an investment opportunity wherein your money earns an interest that is at least not lower than 4% a year. Earning 4% a year will allow you to keep up with inflation, but not beat it.

Saving vs. Investing
Saving is simply keeping your money on a piggy bank. Over time, you will save a lot of money, but the only money you saved was money that you put in yourself. Bank is a better option to save money. Unlike a piggy bank, banks will pay you an interest. However, such interest is too low (and slow) to even keep up with inflation.

In short, banks are fantastic and convenient way to keep your -- Emergency and Business money -- but not your life savings, retirement fund or investment money.
 
So if you want your money to grow a substantial amount by itself, you should invest.
Investing is having money work for you. You put it there, and with little or no work required from you, it earns and compounds by itself. This can be done by either buying a certain investment product such as bonds, mutual funds or stocks, or by going into business, real estate or multi-level marketing.

How about risks? 
Almost all investments carry some risks. That's why as an investor, you should educate yourself first regarding the risks and returns of the investment you are about to pursue. Remember, risks may be inevitable, but can be calculated.

Don't just save.

Save and invest.

PisoandBeyond
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5 comments:

  1. yeah so true the intrest in banks is too low compared when ur making loans to them pinakamaba2 na ata 1% a month! tapos interest wla pa 1% in a year. tsk tsk

    ReplyDelete
  2. pag time deposit ba ganto din kababa???

    ReplyDelete
    Replies
    1. AnonymousJuly 08, 2014

      No and your deposit is guaranteed up to 500K by the PDIC ...

      Delete
  3. Well written article, personally I would suggest to start with Mutual Funds, their safer but earns better.

    ReplyDelete
  4. It`s really helpful blog. I would suggest this blog with my friends of OTMH Assignment Help UK. Thanks for sharing with us, I really appreciate with us.

    ReplyDelete

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