How Savings Accounts Cost You Money


Saving accounts can cost your money especially when the economy is at the risks of inflation, which is also a massive problem for people with investments as well as savings. Inflation reduces the purchasing power of the currency and also reduces any interests on savings.




What is Inflation?

Let’s get you started with, what is inflation? It is a reliable measure of economic growth and household wealth. In other words, Inflation is the general rate at which price levels of goods, as well as services increase over time. It means your money will lose value, and the same commodity that you were purchasing at $1, you’ll be now required to pay $5 for the same. The same case applies to saving accounts where inflation reduces the interests on your savings.

How Inflation Affects Your Savings?

When inflation rises, it also increases the cost of living, and the resulting interests can’t keep up the rise of price levels of good and services. You may end up digging back to your saving accounts, and you’ll lose money since its purchasing power has reduced.

Your savings accounts are subject to interest rates. During high inflation, your savings interest rates will be much lower, and if this continues for a while, you may find it difficult to have an increase in your savings. In other words, you won’t be able to beat inflation.

The only way to gain and not lose money through your saving accounts is to have the rate of interest being higher than the rate of inflation. And this after tax on your savings account.

You need to come up with an investment strategy that will prevent rates of inflation eating up all your savings. And it will be difficult to keep up with living costs, and the money you have in your savings account will be of no much help since the purchasing power is reduced.



Safeguarding Your Savings Accounts from Inflation Through Investments

To avoid inflation eating up your savings accounts, you need to take that money and invest for a better return. When you put your money for investment, in the long-run it will be able to achieve and increase its purchasing power.

Here are ways in which you can fight inflation.


Risk Taking

Don’t just investment, but look for those that promise an ambitious return. While doing that make sure to consult your financial advisor and do research to avoid investing in a Ponzi scheme. Take high-risk investments to aid in offsetting the high costs of living due to inflation.



Don’t just put all your money on one investment but several of them will do. When inflations affect an individual investment, you’re sure to reap big from another one.




TIPS (Treasury Inflation-Protected Securities)

Invest in TIPS since they are adjusted to fall with deflation and rise with inflation. If you expect inflation to increase, then these are the government bonds to invest in.


Stay Invested

Don’t try to cash your investments for retirement, rather than you should stay invested and enjoy the returns that will help you by keeping up with the rising costs of living.


Invest in Quick Returns Projects

If you want an investment in bonds, then you should go for the shorter maturity ones since they are less affected by inflation. Thus your saving accounts money will be intact.


If you want to safeguard your money in a savings account, then you need to learn and understand how inflation can alter your financial planning and take significant steps to control it.


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June 2018
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