Investing 101 – Investing in savings account

Let’s understand the basics of investing in savings account in this short read, savings account are the widely used money management instrument, however, can you consider it as an investment option?, let’s dive in to understand.

Investing 101 is a series of short reads explaining the basics of investing and the investment options available to us, you can read the first two article using the below link

 

  1. Investing 101 – Understanding Risk and Return
  2. Investing 101 – Treasury Bills & Treasury Bonds

Savings account is considered as a low-risk investment which brings you low return compared to the government securities, however, savings accounts are the most widely used financial tool in the world. For many people, the savings account is the very first introduction they used to have to the world of personal finance and money management as most of us do all our financial transaction through a savings account.

Most of us don’t consider savings account as an investment, we use a savings account to maintain our day to day expenses and very few people bothered about the return (interest) given by a savings account. Savings accounts come with an incomparable liquidity compared to other investments and the account holder has the freedom to withdraw the money from the savings account at any given time of the day.

Inflation is the biggest enemy to saving accounts, Inflation can cause net loss for your saving

Nowadays, most of the savings accounts come handy with a debit card and online banking facility where the account owner can maintain his finance at peace without visiting a bank branch, still, we found there are some factors to be considered before opening your savings account with any of the licensed bank or financial institutions.

Reliability of the institution (Banks and finance companies)

It’s a common factor to be considered when it comes to investing your money irrelevant to the type of investment you choose, the investor has to make sure of the legal state of the financial institution and the reliability of the company, some companies offer attractive packages to attract customers and finally they end up in winding up the company, the account holders have to wait till the central bank to get involved and pay the investment in parts where there will be no use of the investment. Sometimes investors end up with nothing. Credibility, reliability and legal state of the institution is a must to put your money with the institution.

Flexibility and Liquidity 

Check the number of ATM centres available to you in your vicinity, non-availability of your bank ATMs can increase your cash transaction costs as using other banks ATM’s will charge you a service charge, which is unfair at sometimes.

Related Read  Key Things to consider before opening a Savings account

Also, make sure to sign up for the internet and mobile banking, we are living in the technologically advanced era and applications and internet will save your time, money and energy. Again, be mindful of the charges and limitation. You may look out for the latest technology inclusions such as CEFT, JUST PAY etc.

Savings account also considered as a low-risk investment which brings you low return compared to the government securities.

Offers and benefits

Most of the banks come up with attractive promotions and offers, some debit cards provide discounts, zero surcharges at petrol pumps, reward points and cash back offers. If used wisely, debit cards can, in fact, bring down your transaction costs. Therefore, when choosing a savings account, compare the deals available with the debit card offered.

Withdrawal Limitation

You opened a savings account because you want to deposit and withdraw money whenever you want, the trap is waiting there, most of the savings account gives you interest income with a condition, and you will not receive the interest income if you exceed the number of withdrawal permitted. If the account you are interested in does restrict the number of withdrawals you can make, then I would say “switch to another”.

opening a savings account

Be aware of the charges

A good savings accounts should have no charges or few charges, most of the banks charge a service fee when you withdrawing, when you access the ATM, when you request for an ATM card &/or when you do a fund transfer. You should aware of the charges; there are few savings account options available without any of those charges or with very less competitive charges.

Inflation

Beware of the inflation, because without your knowledge inflation can eat your returns and you will end up with negative returns, at the time of writing this, savings account interest rates are at around 3.5% per annum, inflation is approx 4.5% per annum, the savings account owner loose approx 1% due to the inflation and savings is not the right investment option to keep your money when inflation rate is higher than the bank deposit rates.

Related Read  08 tips to grow your money

Opening the best savings account in srilanka is not a big deal, we have lot more measures and means to compare and select a perfect savings account for you, we really did not want to consider interest rate as a factor  since it’s not a key factor comparing to other benefits, however interest rate also important when your savings grow big. The important point is after you open your account, remember to start saving. Even if you only have a small amount to contribute each month, even a little money is a great start.


Disclaimer: The information contained in this article is for informational purposes only, should not be considered as an investment advice. Always make sure to do your own research, talk to your financial advisor and/or seek independent advice where appropriate & necessary.

 

 

Kathirnathan Ragulan

Kathirnathan Ragulan is the founder of advisor.lk and a serial entrepreneur, Business Consultant, Wealth Tech entrepreneur, Personal Finance & Debt Management Expert with over a decade of banking and investment industry experience.

Leave a Reply

Your email address will not be published. Required fields are marked *