Banking

With all of the uncertainty in life (and the stock market), it would be nice to have a place to put your hard-earned money that is safe.  Banks have traditionally been known as safe places to store and save money.  Storing your money in a bank is certainly better than hiding it in your mattress or in the back of your toilet tank.  However, beyond safety, banks these days don’t really have much to offer you.  I have recently become a financially independent 20-something, and so I’m looking at these age-old problems with fresh eyes.

I used to believe that it was sufficient to simply save money, put it away for later, and then retire by the date of 65.  Now that I am considering the full picture of life’s expenses, I realize that couldn’t be further from the truth.  When you’re 20-something and you are trying to figure out what to do with any money you are able to save, you commonly turn first to your bank.  You may already have a checking account, but now you also want to start a savings account.

This savings account may yield a 1% return – if you’re lucky.  I was recently offered a 0.65% rate as a special promotional offer, and the bank acted as though they were rolling out the red carpet for me.  To get an offer of even 2% guaranteed, you’ll have to invest in a CD, tying your money up for 2-5 years at a time – sometimes longer!  At a rate of return as low as 1-2%, the money you’ve saved so scrupulously is NOT beating inflation rates.  That means that by leaving your money in a bank, you are actually losing value over time.

Now, we need to keep some of our money at a bank, because we need to write checks, make deposits, and complete other financial transactions.  I am in no way denying the usefulness of banks.  However, the thought of saving large sums of money in a bank – particularly at today’s insanely low interest rates – makes my blood boil.

One argument for the benefit of lower interest rates is that people will be able to borrow money more readily.  However, this is at odds with financial success.  If this county is going to get healthier financially, we’re going to have to start investing and growing our wealth, not just borrowing and increasing our debt.  Sure, it’s great that home mortgages these days are as low as 4-6% in some places.  However, if you can only get a 2% return at your local bank, you’re still at a loss.  Back when mortgages and CDs both were closer to 10% (and the stock market was MUCH higher), we were all better off.

All this is to say that saving through banking, despite all the smiles and kind words at your local branch, cannot be your main path to financial success.  As 20-somethings, now is the perfect time to save as much as we can, but it is prudent to invest it in some more profitable avenues.  How you find them is up to you.  I’m not an expert at investing, and so I would not want to offer my methods up for criticism.  I’m only writing this to urge you to investigate alternatives to saving money at your bank.  Maybe once banks start seeing a lot of money flowing out, they’ll realize the need to be more competitive and we’ll all benefit from higher rates of return.  Until then, protect your assets from depreciation and grow your wealth for the future!

As always, please feel free to add your thoughts and contributions to my post.  I’d love to continue the conversation.

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” – Charles Dickens

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