Just a couple of decades ago or so, the worst thing you could have ever done with your money was to keep it in your possession as cold hard cash, or “put it under your mattress” as the old saying goes. If you kept your money as cash in this way, it did nothing but maintain its current value and perhaps slowly lost a bit of value as well, in line with the inflation rate. Nowadays however, the paradigm has shifted. Saving your money in the traditional manner of putting it away in a savings account has taken the place of putting it under your mattress.
Because of a number of economic factors which have arisen largely due to the over financialisation of just about every market you can think of, if you’re not putting your spare money to good use by investing it, its value gets eroded quite quickly, even if you’ve placed it in a savings account.
The rate at which inflation grows these days is much faster than it previously was. Money tends to lose value much quicker and the 6-7.5% average annual returns bracket offered by most savings accounts of most banks in itself falls behind the inflation rate. So as much as saving traditionally may minimise the effects of inflation on the loss of your money’s value, your money is essentially still losing value while the bank itself is making money out of your money.
As if inflation alone wasn’t enough, banks have somehow managed to convince us that it’s just part and parcel of the “service” for them to charge us for moving our money into and out of our savings pockets. If you have a savings account, it basically operates like a current account and you in effect have to request for that portion of your money you want to earn savings interest on to be moved to a savings pocket within your savings account.
That of course incurs charges, which can ultimately work to negate any interest you might have earned on the money you moved into and out of your savings pocket, in line with your dynamic financial needs.
Negative Interest Rates
If you really look at it properly, this is just a fancy way of adding more bank charges on the existing fees levied by the banks to deliver to you their banking service. Unless you’ve specifically opened a savings account which only charges you on a per-transaction basis, if you conducted an experiment in which you left some money in the bank for a couple of decades or more, the bank charges would eventually erode your cash and depending on how much you had in your account, it could get completely depleted.
These three concoctions of the financial industry and particularly the banking industry are precisely the reasons why it’s no longer enough to just save your money in the traditional sense.
You should rather invest some of it to yield some returns that at least beat inflation, otherwise you’ll find that you actually depend on your job or regular source of income a bit more than you might have initially thought, just to be able to keep up with the costs associated with storing your money.