After receiving salary every month, most people leave their savings in the savings account. Many people have Rs 10 lakh, Rs 20 lakh or even more lying in their accounts for a long time. They feel that the money in the bank is completely safe, so there is no risk. But financial experts say that keeping more money than required in a savings account for a long time can prove to be not a profitable deal but a loss-making one.
Inflation reduces the real value of your savings.
Today, most banks offer about 2.5% to 3% annual interest on savings accounts, while the average inflation rate in the long run remains between 5% to 6%. This means that even though your bank balance may appear to be increasing, the purchasing power of that money keeps decreasing. This means that in future with the same amount you will be able to buy less goods or services than today.
Amitabh Lara, Executive Director, Anand Rathi Wealth Limited, says that savings account should be used to keep emergency funds and not to keep large amounts of money deposited for a long time. He believes that it is not enough to just keep the principal safe, but its purchasing power should also be preserved.
Consider the example of Rs 10 lakh
Suppose you have kept Rs 10 lakh in a savings account and you are getting 2.5% annual interest on it. After 10 years this amount will be around Rs 12.8 lakh. But if inflation remains at 6% annually during the same period, then around Rs 17.9 lakh will be required to maintain the lifestyle like today. That means your savings will be left behind by around Rs 5 lakh.
According to Adil Shetty, CEO of BankBazaar, the real question is not whether your savings have grown or not, but whether they have grown enough to meet your financial goals.
How much money should be kept in savings account?
Financial experts recommend that you keep only emergency funds equal to the necessary expenses of 6 to 12 months in the savings account. Apart from this, the money which is not to be used in near future can be invested in investment options like liquid funds, fixed deposits, debt funds or equities for long-term goals. Due to this, there is a possibility of getting better returns and the effect of inflation is also protected to a great extent.
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