Why You Should Not Let Your Money Lie Idle In Your Savings Account
Keeping money in a savings account only gives you liquidity and safety, but It does not even beat inflation
When you get your salary, it comes to your savings account. Interest from fixed deposits (FDs) and other income also comes to your savings account. When our savings account has a balance of a few lakh rupees, somewhere we feel nice. A lot nicer than what we feel if the balance is nearing zero.
But one should not leave a lot of money lying in their savings account. Let us see why.
Money Is ‘Not Safe’ In Your Savings Account
The term savings account means that it is a place to save your money. Saving is a good thing, but there is a problem and money is not safe in your savings account. What does that mean?
It does not mean that you will lose money in your savings account, not literally at least. However, a savings account provides 3.5 per cent to 4 per cent interest. Meanwhile, inflation is higher at six or seven per cent. The Consumer Price Index (CPI) numbers may be lower, but actual inflation is higher.
“Keeping money in a savings account only gives you liquidity and safety. It does not even beat inflation. So, cash in a savings bank account is a slow death,” says Madhupam Krishna, SEBI registered investment advisor (RIA) and Chief Planner, WealthWisher Financial Planner and Advisors.
While you save when you put your money in a savings account, to grow your money you need to invest. One has to make money work for him or her. And to invest the money one has to part with it too. You need to buy something that will increase in value. “If you decline to part with your money and participate in investments, money is bound to die,” says Krishna.
We don't have the kind of self-control needed to save and if we do, we are doing it and ourselves a disservice by letting it become lazy and not work.
“If money is idle, not only does it not grow, it also loses its purchasing power over time, thanks to inflation. So, being lazy about investing your money is costing you. Work on it to make it work,” says Shweta Jain, founder, Investography, a financial planning firm.
What About Emergencies?
One may argue that one may require money in the time of an emergency and keeping it in a savings account is important as it provides liquidity. Keeping six months of your expenses in a savings account can come in handy in case of emergency since you need liquidity, but even here there are better options.
“Better is to keep it in an ultra short-term fund account where you can earn up to seven per cent and have full liquidity of your funds. At least let your funds beat inflation,” says Anant Ladha, founder, Invest Aaj For Kal, a financial advisory firm. So there is no point in having a big amount in your savings account and risking yourself of cyber and other crimes.
As mentioned, it does not make financial sense to keep your money lying idle in a savings account. Investing the money in mutual fund SIPs will help you grow your money and meet your financial dreams.
