Is Your Savings Account Really Making Money For You?

  

Majority of Indians prefer saving their money in bank and earn interest over it but interestingly this might not be the smartest option .India's GDP grew at 5% over the last quarter marking it as the slowest  in the past 6 years. With loss of jobs in all the major sectors, Indian economy is facing a hard time and so are the common people.   

  

• What's the story ?

Most Indians save their money in several banks and earn interest from it. Presently for savings account the interest rate is an avg 4% (on higher side) and for Fixed Deposits it is around 7% (higher for senior citizen). While the Inflation rate in India was 5.05% as of May 2019 (Wikipedia) , it makes no sense to put your money in a savings account. 

Now let us try and understand the correlation between these things :

In economics, Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. 

For instance ,

Suppose you have 100 INR and you want to buy a book for 104 INR . A bank name XYZ offers 4% interest per annum on its savings account and you decide to deposit your 100 INR in that bank , so that after getting the interest of 4% i.e. 4 INR you can afford the book. But after one year you realized that you still can't afford that book as the book is now priced at 109.25 INR as the Inflation costed 5.05 %  price hike of that book(the inflation rate of book's price might vary with the avg inflation rate).

• What's Next ?

Though banks are the safest place to keep your hard earned money , it's definitely not the wisest place to invest. Understanding the risks, gaining proper knowledge and taking help from consultants/advisors , you can invest your money in Mutual Funds,Stock Markets etc.Though this example is not ideal but we hope it will make you understand how these things are correlated.Let us know in the comment section if you have any doubts or questions regarding investments.