Savings Accounts Are a Joke

Saving is undoubtedly a crucial part of successful management of personal finances. And, the way many people save their money is through savings accounts at financial institutions. However, the effectiveness of this method in preserving a person’s purchasing power is quite low. The current average APY on a standard savings account is .06%. At the same time, inflation hit 7.9% in February. 

This leads to the point that savings accounts are a colossal waste of time for people trying to preserve their financial purchasing power over time. At a .06% interest rate, a person with $5,000 in their savings account would see an increase of $3 added from interest in a year. In that same year, however, that same person’s $5,000 savings would lose $340 in real purchasing power. This comes out to a net loss of $337. Interest rates in savings accounts are so low now there is no fundamental difference between putting your money into a savings account and literally just shoving it all under your mattress. Disclosure time: I’m not providing financial advice and am not a financial counselor, however, options exist for long term savings that do not fall victim to the same pitfalls as savings accounts, namely cryptocurrency, gold and other resources, and stock index funds. 

Cryptocurrency has experienced a massive boom in usage in the past decade. Over the past five years, Bitcoin has seen enormous growth in value, going from $909 on Jan. 6, 2017, to now nearly $40,000. Though critics point out its market volatility, the long-term trends show that over time it could be an excellent store of value. 

Similarly, gold on the US market has seen significant growth over the past five years, with a nearly 65% increase in value during that time. Though less liquid than other assets, in terms of consistent value appreciation, gold has proven in the past to be a solid asset for value over the long term. 

Stock index funds are another option for long-term savings. Though subject to market volatility, over the past five years, the S&P 500 had increased in value by more than 100% at last check, the Dow Jones Industrial Average grew 82.02%, and the Nasdaq Composite has grown a whopping 183%. All of this despite the 2020 market crash. 

Savings accounts, though the most accessible method of saving, is the worst long-term method in terms of being a store of value. Disagree? Let me know in the comments!