Why you should never save your money in a bank account

 

Most people have some of their money saved in their bank account, but it might be time to rethink that strategy. 

While it’s tempting to sit back and leave your money in the bank to earn interest, the reality is that inflation might just do more harm than good over time if you can’t keep up with it, or worse – get on the wrong side of inflation by holding onto an asset that has lost value. 

The sooner you realize that you can do better with your money and investment strategies, the better off you will be. Here’s why you should never save your money in a bank account.

The history of savings accounts

Savings accounts have been around for centuries. They were originally used as a way to store coins and other assets that had some type of value. Throughout the years, savings accounts have evolved into something else entirely. 

Many people don’t know the history of what these accounts actually are or how they work. Here is an explanation of the history behind savings accounts and how they work today.

How banks use your money

Banks make their money by lending the excess deposits they have on hand. They don't just wait for people to come and deposit more, they go out into the world and borrow money. They then lend that money out to others at an interest rate which is typically higher than what they are paying on the deposits people give them. 

Banks can pay some attention to what's happening with all of this borrowing and lending, but it doesn't need to be their primary focus. It's much better for banks if they lend their customer's deposits, rather than allowing those funds to sit idle in a savings account or CD (certificate of deposit). 

This way banks can make more profit from the interest charged on the loans than from collecting interest on the deposits.

 

Inflation and interest rates

Inflation is the general rise in prices over time. This can be caused by many factors, but the most common ones are too much money being printed and not enough goods to buy with that money. 

When this happens, the prices of goods will go up because there's more currency to buy them with, while the amount of currency remains unchanged. The interest rate is an important factor when it comes to saving for the future. 

Interest rates are how much people pay for their borrowing and savings accounts at banks or other institutions like credit unions.

 

The best way to save your money

We all know that savings accounts offer virtually no interest these days. You're lucky if you're getting any interest at all. The best way to save your money is to invest it in the stock market or put it into an index fund. 

This will not only provide you with some steady returns, but also help diversify your portfolio. If there's one thing I learned from working in finance for so long, it's this: Never ever ever save your money for a rainy day when you can make passive income by investing.