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Like many people, I have a savings account opened and I regularly transfer money there. But although I think it’s important to have money in savings to prepare my emergencies and to save for big expenses, I actually keep my account balance as low as possible.
There’s a very good reason why I don’t like having too much money in savings. Here’s why I’m keeping my savings account balance lower than expected.
Why I keep my savings account balance to a minimum
Although I know that having money in savings is essential, I keep my account balance to a minimum for one simple reason: interest rates on savings accounts are very low. Even with a high yield savings account, it’s really hard to find rates well above 2.00%.
Since you don’t receive much interest on your savings money, the best-case scenario is that you break even after inflation and your money doesn’t lose ground. If inflation is around 2% per year (which the U.S. Central Bank considers an ideal inflation rate), then the price of goods and services increases at about the same rate as the best account. high yield savings. This means that even if I don’t really make any money, the money I have in savings can still buy the same amount when I withdraw it as when I put it in.
Right now, however, inflation is well over 2%, which means savings money is seeing its value eroded. Although it is safe in the account, by the time I withdraw it, the purchasing power of my money will have dropped and I will not be able to get as much out of it.
And even though inflation will stop rising at some point (hopefully), interest rates on high-yield savings accounts should come down at that time. So even when prices stop rising that much, there’s a good chance the rate my bank is paying will drop and I’ll still end up losing ground or barely staying above water.
Now, that doesn’t mean I don’t keep money in savings. I want to have cash accessible in case of emergency and I keep money in savings if I will use it in the next few years.
It’s because I can’t lose the funds in my high yield savings account, so I won’t have to worry about whether I’ll have less than I put in when I go to withdraw the money. ‘silver. I also won’t have to worry about my investments being temporarily down by the time I have to withdraw the money, forcing me to choose between selling and locking in losses and waiting to make a purchase.
So I keep the minimum I need for my emergency savings and short term goals in my savings account and nothing else.
As for the rest of my money, whatever I save for the future goes into a brokerage account. There it can be invested in other things – like ETFs – which are much more likely to provide returns above the annual inflation rate.
Although there are risks to investing in the stock market, I’m still convinced that it’s a better place for most of my money that I won’t need soon. Indeed, investing in stocks over time is one of the best ways to build wealth. So I keep what I need in savings and invest the rest because it will best help me achieve my goal of building a financially secure future.
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