Do you only have one savings account with the bank?
Here’s some important advice for you.
Many people keep their money in the savings bank account thinking that investing is risky and they want to protect their hard earned money.
However, if you keep the money in the savings account which gives you only about 4% to 6% of interest (which is not even ethical for Muslims). You’re actually losing the purchasing power of your money as the inflation in India is rising at about 7.7% per year on an average
Think of it this way. You’re keeping Rs.1000 in a savings account and you get a maximum of Rs.60 (6% of 1000) as an interest in one year. So you’ve gained 6% but in reality, you’ve lost 1.7% in that year. This is simply because of loss of purchasing power.
- What is Loss of Purchasing Power
Lets say an Apple costs Rs.1000 today, then it’ll cost Rs.1077 next year because of inflation and many experts says this 7.7% is an underestimated figure, the reality is much higher.
Even if we compound the effect of this 1.7% in a long term then you’ll be shocked with the amount of loss you make in long term. You might think you have the balance in your bank growing with interest but that’s not always true.
- Deposit Insurance
More over, your deposited money is secured for only up to Rs.1 Lakh in a savings bank account in India.
DICGC is a subsidiary of RBI set up in 1961 for providing insurance on bank deposits, such as saving, fixed, current and recurring deposit for up to the limit of Rs. 1,00,000 in a bank.
So in short, if your bank goes bankrupt and does not have the capacity to pay anything, the DICGC will pay the deposited amount to you.
So there is risk everywhere. First you lose the purchasing power and second the principal amount in case bank goes bankrupt.
However, in the history of India, there was no such instance where the bank failed and went bankrupt. There were two situation when the bank failed but RBI was proactive enough to merge it with bigger banks to avoid any hassle.
Its also not a good idea to put all your hard earned money in same bank. If the bankers are on strike (which as happened many times for govt. banks) or the bank web site is facing server issues or some other issue then you’re simply stuck.
There are chances or bank fraud which can lead to all your money getting stolen. So its good to diversify on the bank account as well. You should atleast two minimum 2 bank accounts (1 in private and 1 in PSU). Or 3 accounts on a safer side. 1 salary or 0 balance account and two standard accounts and keep emergency funds in them.
And finally you must invest the remaining funds for long term. Follow the next post for investment advice.