Why the banks are guaranteed to lose us money
Where do you put your money? If you are like many people, you believe the safest, easiest option is to put your money in a bank account and allow the interest to grow. While this seems a relatively safe method, it may not be the best option. In many instances, using a traditional bank in this manner can actually cost you money. Before you invest, get to know your options a bit better and make the best decision for your situation.
What Banks Are Costing You
Just a few decades ago, it was commonplace and even considered the best option to put money into traditional savings accounts and other short-term lending options offered by financial institutions and/or banks. During those times, interest rates were significantly higher (though this ranges widely from one country to the next). Additionally, inflation was lower. This made for small, but simple returns on your savings. You didn’t have to make complicated decisions when you could earn a return of 2 to 4 per cent, or sometimes significantly higher, in a traditional bank account. Things have now seriously changed, though.
One of the key problems with investing in these traditional accounts stems from inflation. Consider that some countries are seeing inflation at a rate of 6%, 7%, or higher per cent per year and you can see why the 1/2 to 1 per cent interest from some bank accounts is simply not effective. It is actually costing you real money to hold onto your money in this manner. Add to this the poor rate of return and the simple fact that you have to pay fees on most accounts today, and this is simply a losing battle. Today’s financial advisers only recommend using these accounts when you need to keep money on hand. This is ideal for those who need money that’s easily within reach. Otherwise, you end up losing your money by simply holding onto your cash.
How Are You Losing Money, Though?
You can clearly see how inflation and the overall poor rate of interest can impact your bank balance. However, there is more money being lost here than you may realise. If you choose to invest in these accounts instead of diversified long term investments you are losing even more money.
Even if you are investing a small amount of money into the stock market each month (the same amount you may be putting into a traditional savings account) you are likely to earn a significantly higher amount in the long term than if you were to keep doing what you are doing. That is lost income to you.
But You Don’t Want to Invest?
Many people do not know how to invest in the markets correctly. They think that all stocks are too risky. They may believe it is too costly to get started. All of these misunderstandings can negatively impact your long-term goals. To avoid this, work with an experienced financial adviser. He or she can provide you with clear, objective, independent advice and strategies to guide you into making money rather than losing money through your banking relationships.
If you do not take the time to change your financial strategy, though, you’ll end up seeing a loss. It may not be as difficult as you realise to make the switch, though. By moving what’s in your traditional bank accounts into financial investment accounts, you’ll see a significant rate of return, potentially, and you’ll stop losing money in the process.
About Mike Coady
Mike Coady is an expat expert based in Dubai and is on hand to help with all of the above and more.
Mike is an award-winning money coach and industry leader in the financial sector.
Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Founding Fellow of the Institute of Sales Professionals (FF.ISP), and a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.
To learn how to choose a great financial adviser, download our free guide.
Blog published by Mike Coady.