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Why Your Savings Account Loses Money (and How to Fix It)

Why Your Savings Account Loses Money (and How to Fix It)It seems safe to park your cash in a regular savings account. Once you log in, you find that your...

arbab 2 min read · 12 hours ago

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Why Your Savings Account Loses Money (and How to Fix It)

It seems safe to park your cash in a regular savings account. Once you log in, you find that your balance is still there and therefore assume your money is secure. In fact, however, that balance is gradually losing purchasing power each and every day as a result of a subtle financial danger: inflation.

The Hidden Cost of "Safe" Savings

Why Your Savings Account Loses Money And How To Fix It

Because of inflation the prices of goods and services increase over time. If the rate of inflation exceeds the interest rate (annual percentage yield) provided by your bank, then your real rate of return will be negative.

If inflation is 3.5 per cent and your ordinary bank only offers an APY of 0.41 per cent, you are in effect losing more than 3 per cent of the value of your money each year. You might have the same dollar amount, but that amount of money will buy considerably less groceries, fuel and housing than it did a year ago.