The year is 2020. Online investment platforms are popping up everywhere. From real estate to loans—you can easily find a way to invest with just a few clicks. And yet, some people still choose to leave their money in a simple bank savings account.
And that’s understandable. After all, many people were taught that banks are the holy grail of financial safety, the standard for liquidity. And so, they believe keeping their funds in a bank account is the best thing they can do to protect their hard-earned cash.
But is that still true? And do savings accounts actually help you to grow your money? And more importantly: Can they make you rich?
How much does a savings account actually yield?
Most savings accounts in Europe yield less than 1% per year. In some countries you would be happy to find something returning up to ~1.5% p.a. That’s not a very big number.
If yield rates represent how much your money grows, inflation rates represent how much the level of prices have risen—in other words, how much your money has lost its value.
Now, if you compare yield rates for savings accounts with inflation rates in Europe in 2019, in most cases the annual returns wouldn’t even cover your money’s loss of value.
Take for example Germany, with an inflation rate of 1.4% in 2019. If you were putting your money into a savings account in Germany with a whopping 1.5% annual return rate, you would basically gain nothing, due to inflation. And the situation could be even more dire in other countries, like Austria (1.5%), the UK (1.6%) or Norway (2.2%). In fact, the average inflation rate in the Eurozone in 2019 was just above 1.4%. When you compare these figures, it becomes clear that if you’re only relying on a European savings account, your money is most likely not growing at all.
A world without inflation
Now let’s scrap that inflation talk for a second. Even without it, it would take around 46 years and 7 months for you to double your money—and that’s with one of the best savings account interest rates around (something close to 1.5% p.a.). Now that’s a very long time to wait for very little gains.
So, in short, it’s not likely that you’ll get rich with a savings account, even in a world without inflation. So what’s the alternative?
Going beyond savings accounts
The good news is, there are other ways to grow your money. The alternative route is to invest your money where it’s wanted the most—in assets that will pay you more.
Take Bondora’s Go & Grow for example. Its returns are up to 6.75%* p. a. and with that rate, in a world without inflation, you would double your money roughly every 10 years and 8 months.
The power of compound interest is strong—and it shows. A nominal increase of 1% in one annual interest rate today wouldn’t just make you 1% richer in 10 years’ time. As the interest compounds, the difference in your total portfolio after a decade would be closer to 9.94%!
So if your goal is getting rich, or at least growing your net worth considerably in a short amount of time, then search for investment options that provide higher yields and are overall better for you.
The good side of savings accounts
But savings accounts aren’t all bad. Holding a bank account normally gives your very fast liquidity. And that’s a good thing. But making you rich, isn’t one of its strengths. If you like to have quick access to your money, then you might consider leaving some small part of your funds in your savings account. But if you really want your money to grow, it would be wise to invest the other part of your portfolio into more profitable alternatives.
Bondora’s Go & Grow is also a fast liquidity option, as you can request to cash out at any time. But if you’re looking for even more options, make sure to check out these articles first:
- How to know if you can trust an investment platform
- How to create your investment plan
- How to build your emergency fund
Make sure you plan and invest in what suits you best!