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No, keeping money in your bank account is not saving

Jun 08, 2017 | 3 years ago | Read Time: 3 minutes | By iKnowledge Team

Albert Einstein was a genius. You know that. Everybody knows that. He spoke about ‘relativity’, especially time. It does not seem equal at all times.

The most common example is this: When the alarm wakes you up, and you wish to sleep for another 10 mins. But those 10 minutes feel like seconds. But a few hours spent with a loved one seem really short.

Are you confused why we are talking about Einstein in an article about money? Because you face relativity every month.

Think about it.

You get your pay-cheque on the 1st of every month. The first week feels amazing with money in your pocket and bank account. You spend on anything that catches your fancy. That first week passes in mere seconds.

By the second week, you have less money in your account. It goes a tad slower.

And soon, the second week turns into the third and you are in panic mode—you barely have a small portion of your salary left. How will you fund the rest of your month?!

The last two weeks, thus, become painfully slow. You count every penny you spend. You cut costs. You sacrifice. By the month end, you may have a few thousands left. And then, you heave a sigh of relief.

“Thank god, I managed to save money,” you think to yourself with a tinge of pride. The future seems full of possibilities again.

But WAIT! Don’t congratulate yourself just yet.

Your bank account loses money

Yes. Keeping your savings in a bank account is not smart. You end up losing money. Simple reason: Inflation.

Let’s say you purchased a product today for Rs 1,000. Tomorrow, this costs Rs 1,010. This means, the price rose 10%. That’s inflation.

Now, let’s say you decide to save the money today and buy it tomorrow. You think the bank interest would help you buy more. However, the bank pays you 4% interest on Rs 1,000. Your balance, thus, rose to Rs 1,004.

This, however, is not enough to buy the product worth Rs 1,010. So instead of buying more, you face a shortfall of Rs 6. Isn’t this equivalent to losing money?

This is why keeping your money in the bank account is not counted as ‘saving’.

Taxes only make it worse

The money you earn as interest from banks is taxable. This tax applies if the total interest payment for the year crosses Rs 10,000. The tax rate is the same as your Income Tax rate.

Now let’s suppose you fall in the 10% tax bracket. So, of the Rs 4 you earned as interest, you pay 10% as tax. This means you only earn Rs 3.9—much lower than the Rs 10 you needed.

Your loss, thus, increases even further.

So what’s your way out?

Saving is when you keep money aside for future needs. However, this money needs to grow enough to negate the effects of inflation.

For this, you need to ‘save’ in options that give you higher interest. Plus, these options need to help you save tax too.

Technically, this is what is called ‘investment’. Here’s a look at some simple options that have the potential to earn you money:

Any and all of these can help you ‘save’.

The bottom line

Eat. Sleep. Work. Repeat.

That seems to be the mantra for any adult on a payroll. The only saving grace is the pay-cheque you receive at the 1st of the month. You may manage to save some portion of this salary by the month end. But, remember, saving in the bank account loses you money every single day. Be smart and opt for investment options. They can be really easy.

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