Here’s a list of reasons why your savings account may not be saving your money:
Low returns
Savings accounts offer nominal rates of interest on the saved corpus. Generally, savings account interest rates range from 2.5%-3%. This limited interest yield makes savings accounts not a good option for those who wish to fulfil the goal of wealth creation.
Opportunity cost
By keeping your saved funds in a savings account with lower yields, you might be missing out on investment opportunities that could offer potentially higher returns. This is another reason why your savings account may not be saving your money. Savings accounts generally have minimum balance requirements, which means you must divert funds to meet these requirements instead of investing them in liquid funds or other avenues to earn higher returns.
Loss of purchasing power
Keeping your surplus funds stored away in a savings account may offer capital safety, but inflation can erode the value of the stored funds over time. As inflation rises, the purchasing power of your savings diminishes, meaning the same amount of money buys less in the future. In simple words, the low interest rates of a savings account cannot outpace inflation, resulting in the gradual loss of value. This is another way your savings account is not actually saving your money.
Forfeiture of tax benefits
Capitalising on tax benefits is one of the best ways to save money. However, savings accounts do not offer many tax benefits. In India, you can claim a tax deduction of up to Rs. 10,000 on the interest earned in a savings account u/s 80TTA of the Income Tax Act. Investing your surplus in tax-efficient instruments like 5-year FDs, PPF, and NPS may be better for maximising tax benefits.
