Does putting money in a savings account "really" give you "more" money.?

Question

I mean suppose you get like 2% interest each year, not to sure what the average is. If the inflation rate is 4% wouldn't you actually have a 2% loss despite that fact that you have "more" money than you did before.

Answer 1

You are correct

Answer 2

True, but if you keep that same money in a checking account that is not interest bearing then you'd be losing 4%.

The current rate of inflation seems to be around 2.75% (that's CPI, which has its flaws but let's consider that for the moment). There are plenty of online savings accounts that offer 4% or better. Plus, don't forget, your money compounds in a savings account! Say you put in a dollar and it earns 4% in a year. So after a year you have $1.04. Then you have $1.08 the next year etc.

So yes, you do get more money and you will beat inflation (unless this becomes Germany in the 1920s). Savings accounts are also good for emergencies and, as you sort of point out, you are losing money by keeping money that you won't spend in a checking account. There are CDs (certificates of deposit) out there that bear interest as well - probably also in the 4-5% range.

You'd be silly to only find a savings account that earns 2%.

Answer 3

You are talking about the "real interest rate" -- meaning to take account of the effect of inflation -- and yes, it's possible that a savings account will pay negative real interest and that you lose real purchasing power by saving that way. That is why investment professionals advise people to mostly invest in mutual funds in a diversified portfolio.

In reality today, you can find bank savings accounts that pay interest of less than inflation or better than inflation (the best are online savings accounts, such as ING Orange).

Answer 4

You are right, but usually a savings account interest rate will be pretty close to the rate of inflation.

Answer 5

No you are correct. What they call your "real" return on the money is negative, due to inflation. You would need to find an investment that beats the inflation rate to have more money.

Answer 6

Putting money in a saving account-gives you relief in time of urgent need or emergency--If you put the money in shares or fixed account--it will take time to fulfill your urgent need--Men consider the present need rather than the future profits. If there is an excess amount of money--he can invest in shares or fixed securities--then he considers the profit or loss,inflation etc.

Answer 7

Sort of. This is why the economy of the US wouldn't work without poor people.

But you get an exponential growth in your money from a savings accout that you wouldn't get from just buying things.

After ten years, a thousand dollars in the savings account would be 1218.99 dollars, and would only be worth 810.42 original dollars. But after the same ten years, the same thousand dollars would only be worth 664.83 original dollars if you had just kept it in your pocket.

Answer 8

Yes it gives you more money. Interest is interest whether it's 0.45% or 4.5%! If it was sitting in your pocket or wallet it would not be earning any money despite inflation or not.

Answer 9

It just helps you save more money, plus it give you interest. So yes it could help you save more money.