Banks are very helpful and convenient because they allow you to store your money, transfer it, pay for things and even buy data and electricity. You can do all of this while at the same time tracking your income and expenses. They provide an essential service we all need. Banks also provide additional services which are often misunderstood and misused.
One of these old-school services that are misunderstood is a savings account. When it comes to long term saving there is a bit more than what meets the eye. Traditionally banks have marketed their accounts as savings accounts, many people are lead to believe that a savings account grows money when probably we should be calling it a ‘storing account’. Savings accounts can only accumulate interest there is no exposure to any growth assets.
Many of us misuse our bank account as a long-term savings account, hopefully, from reading this you will understand there are better options.
"Investing is laying out money now to get more money back in the future."
How long do you plan on saving for?
Savings accounts with your bank can work for the short term but even then there are other investments that could be better suited to you. Very often people are not aware of investments that provide much higher returns. I will explain why you should consider investing your money in a unit trust while keeping your existing bank account for your transactions and day and day.
DID YOU KNOW:
Our average inflation over the last 10 years 5.12%.
You might be wondering what is inflation:
Inflation is the rate at which prices rise while the item you are buying remains the same. For example, if you buy a cell phone today for R10 000 and inflation is 10% per year. If you bought the exact same phone next year it would cost you R11 000. That R1 000 increase is inflation.
You can either see it as things becoming more expensive or your money losing buying power. A more technical explanation of inflation can be found here.
When growing money it is very important to understand the concept of inflation. If inflation was 5% and someone promised you an interest return of 3% you are constantly losing money over time. This would not be a good investment decision.
Having a bank account is convenient and makes everyday life much easier, however, for saving the best option is unlikely to be a savings account. Using a bank account for medium or long term savings doesn’t help your money grow. At present, you will not even be keeping up with inflation, which means money in your savings accounts is losing value.
If you have some money you are not spending, what do you do with it? Do you either leave it in your bank account or do you transfer it to a savings account?
What do you do if you want your hard-earned money to really grow? Get in touch with us to find out how you can grow your wealth.
Some of the current interest rates banks are offering on savings accounts:
- 1.35% Standard Bank Pure Savings Account
- 2% Nedbank My Pocket
- 2% FNB Savings Account
- 2.5% Capitec
- 0.45%ABSA TruSave
At the risk of sounding like a stuck record – Savings accounts with banks do not equal long term growth. I’m sure many financially successful people will agree. If you were to ask 10 rich people how they grew their wealth none of them will say in a savings account. Growth is about investing, finding better returns and making sure you stay committed. Starting early is a big advantage as our good friend compound interest can take care of the rest.
If you’re still reading this and thinking but how does this investing thing work? What are financial advisors and how can they help me? What is investing? What is Compound interest? Get in touch, check out the links below or lookout for our next article.
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The information provided is not intended to address the specific circumstances of an individual and is for information purposes. Should you require financial advice please contact us firstname.lastname@example.org
Author: Rayarn Barnes