How savings bank account makes you poor

Jan 13, 2023

Rajeev Kumar

Having small amounts in savings bank (SB) account for short-term needs is fine. But depositing large sums will make you poor over time. Read on to find out why

Savings bank account interest is lower than average annual inflation rate. This means the worth of your money in SB account will decrease with time.

Most banks are offering 3-4% interest rate on SB account but average annual inflation is around 6%. Therefore, purchasing power of your money will diminish with time.

There are better solutions for short term cash goals than SB accounts. Let’s have a look

What to do?

You may consider investing in a mix of liquid, ultra-short term and arbitrage mutual funds depending on your risk appetite and time horizon.

These funds offer benefits of liquidity and capital preservation like bank accounts while delivering significantly higher returns.

But, Why?

Returns from short-term debt/arbitrage funds mirror and follow the movement of the repo rate. Currently, they have a yield-to-maturity of 6-7% – depending on the fund.

6-7% returns

As SB account gives very low returns, you have a compelling reason to look beyond your savings accounts.