Why keeping Money in banks is Hazardous?

'Don't think about saving money.Think about making more money!'

One major mistake of Indians I would like to talk about today is keeping money in banks.

I have heard a lot of people say that investing money in stock markets is risky and they would prefer to keep their money safe in the banks as it also gives you some interest and is safe. Bank offers a steady return on investment however return from stocks is uncertain.

Would you be surprised, if I say keeping money in a bank account is riskier?

I am sure many of you will be.

Have you ever heard of the silent killer “Inflation”? Fixed deposits in the banks would surely provide you a fixed return but what about Inflation?

Inflation is the increase in price you pay for goods. It can also be referred as a decline in purchasing power of your money. Today, if a 1BHK flat costs rs 4,00,000 then certainly over the next year its cost will increase.

Inflation rate in India is around 7–9% per year i.e. next year the cost of that same flat would become rs 4,40,000(Considering 10% inflation rate). If you had put rs 1,00,000 into your bank account,next year you will fetch rs 7,000(Considering 7% interest rate). Moreover, interest gained from a fixed deposit is fully taxable. If you fall in the highest tax slab, it close to 31%. Even if you fall into the lowest tax slab, the tax rate is 10%.

So if you compare 100 rs with fixed deposit interest and inflation rate, the next year you will fetch 107–108 rs(which is taxable), on the contrary with regard to inflation rate,a good having price of rs100 would become 110. The irony is that the interest on a fixed deposit is directly related to inflation. Thus, if we juxtapose fixed deposit interest rate and inflation, keeping money in fixed deposits can’t offer a positive return.

Still would you say, keeping money in fixed deposits is better? The saddest part is more than 50% household savings is in the form of fixed deposits.

I am not saying stock market investment is not risky. I just want to say that we truly lack financial education. We are not at all aware of the word “Money management”.

As Robert Kiyosaki famously said: “Don’t work for money. Let money work for you.”

To clarify my point,whenever you think about saving your hard earned money,just assume you are 30 now,you want to retire at 50 and you don't want to work after that.In these 20 years you have been saving all your money in fixed deposits.How much do you think you can save in 20 years without proper investments to live a comfortable life and adjusting with ever increasing expenses?How many years will that money help you sustain?

Answer is simple!

Invest.Diversify your options.Analyze.

A simple research and proper allocation of your money other than banks can increase our wealth hugely.

                                       

Remember the key rules!

Make Money.

Use that money to make more money.

Repeat!!!

By-Abhiram Dapke