This article is a 5 min read.
4 Ways Your Savings Account is Actually Making You Poorer Every Year
When you put your money into a savings account, chances are you’re expecting to walk away slightly richer at some point in the future – think again!
If you are placing most of your wealth into a savings account, you may well find that your net worth is decreasing year after year, rather than increasing. Want to know why? Read on.
No. 1 – Interest Rates and Inflation
Interest rates – and therefore cash savings rates – have been at near record-lows for more than a decade. And during that period, the increasing cost of day-to-day living (inflation) has risen faster, in percentage terms, than the savings rates offered by banks and building societies.
What this actually means is that because prices are growing faster than your savings, the money you have stashed away in your savings account gradually becomes worth less and less over time. The $10,000 you put away in 2010 will actually purchase less for you in 2020.
How To Transform Your Savings Into True Wealth
- The Masterclass -
At Firstline, we are experts at creating, growing, and maintaining wealth in Trinidad and Tobago.
With some of our staff working for over 4 decades in the financial industry, in addition to the success stories, they have witnessed many a person’s finances rise and fall or stagnate, and there are specific actions taken by those who keep their finances rising over their life, compared to those who were not as proactive.
Enter you email below to gain access to our masterclass video that outlines what it truly takes to transform your current savings into true wealth in Trinidad and Tobago.
No. 2 - Your ATM Card
Money in your savings account should be for emergencies and day to day spending. If your “savings” are also held in the same account, that is accessible through your ATM card, you may as well say goodbye to your plan for wealth attainment.
The saving/current accounts provided by the banks are not meant for long term saving. It is a bad idea to put your investments in there. The savings accounts are for short-term cash flow – for managing your next 1-2 months of expenses and for minor emergencies. It is easy to take money out of it and rotate. This money isn’t earning a lot of interest, but will cover you for living expenses and minor emergencies. It is not designed to save money to create financial independence.
No. 3 – Diversification
If you want to ensure that the value of your money tomorrow beats the cost of holding your money, you have to manage your money in a deliberate and active way. This means creating an investment portfolio with a diversity of instruments such as mutual funds, equities and index funds to optimise returns.
You definitely should keep a portion of your money in a savings account. This would include an emergency fund with about 6 months’ worth of expenses set aside. The money that you set aside for saving and investment should be in a separate fund, that you do not have easy access to, as a significant portion of fund growth comes from compound interest.
No. 4 - Bank Charges and Limitations
Most banks charge annual fees for having a savings account with them. It’s possible that the fees for your savings account will be higher than the amount of interest you earn on your savings account. Further, there are hidden charges for many of the transactions done on the account. For instance, going below the required minimum balance may activate penalty fees. There may also be limits to the number of transactions you can make in a particular period. Due to the fact that savings accounts are safe, they are not as free, nor as flexible in enabling you to do what you want with your money, as you may be able to with a riskier investment. In other words: you may actually be paying the bank to hold your money.
Every successful person had to take their first risky step. After that step, everything changed.
Being successful in life means taking risks.
Therefore, learn to take responsible risks with your money, rather than keeping it all in a savings account!
If you think you are now ready to start on the road to building wealth, that’s where we come in.
Make the move to a wealthier future NOW.
Who Are We?
We are Firstline Securities Limited, an independent financial services firm, based in Trinidad and Tobago.
We are experts in creating, growing, and retaining wealth for our clients in T&T, as well as in the French, Dutch, and OECS territories of the Caribbean.
We invite you to look around our website for more information. If you’d like to begin the process of becoming a client, simply click the button below.
3 Comments
If not keep money in a savings account what is the better investment option that is safe?
Hi Calvin, thank you for reaching out. Having a savings account is prudent, but it is not considered investing because the goal of savings is to accumulate cash by “not spending it” while the goal of investing is a more dynamic one – for your money to grow on its own. They are two separate things with different purposes. If you are looking for a low-risk investment option, money market funds or mutual funds that guarantee the return of your principal and / or have fixed “net asset values” would be good options. All of our main commercial banks carry these type of funds and there is also our largest indigenous mutual fund provider – the Unit Trust Corporation.
That said, “safety” is relative and if you wish to secure all of your life goals, you may need to invest in more than just money market funds. If you’d like to find out more about investment options that suit your appetite and your goals, you can get in touch with us by responding to this message. You can also sign up for our masterclass video on “How to turn your savings into true wealth” which provides information to some of your questions.
I have been reading the information shared and find it very enlightening and informative. Looking forward to the masterclass video.
Awesome initiative.