Is keeping too much money in savings account a bad financial decision?
While people mostly resort to their savings accounts to save money, it is not a wise decision to keep all your money in the savings account as it may not attract higher returns.
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Savings accounts are the most basic and traditional investment avenues. These accounts also help you in regular transactions as well as investing in other instruments.
However, stashing away too much money in a savings account might not be the best financial strategy. It is very much possible that too much money in a savings account can either earn little or no interest. One of the major reasons why keeping a lot of money in a savings account might not be a wise decision is the change in repo rates. Banks often change their interest rates based on repo rates and it directly impacts the savings accounts.
So, what should you do in such a situation? Scroll down to learn how you should invest your excess balance in a savings account to earn higher returns.
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Is it bad to keep too much money in a savings account?
While people are used to keeping their money in a savings account for day-to-day expenses, keeping a large amount in savings accounts may not be wise. With banks offering interest rates as low as 3.5-4 per cent per annum on savings accounts, you may not earn any return on savings accounts if you consider the inflationary pressure.
Many people prefer to park their entire earnings in savings accounts as they feel a sense of financial security and stability. Some of the reasons why many people still opt for savings account are:
- Acts as an emergency fund
- Serves short-term goals
- Easily accessible
- Low risk
Where to invest the money instead of putting it in a savings account?
After having the safety net of savings in place, one can take the time to think bigger about their future goals and use the money to achieve them. This can be done by investing the money in the market in long-term plans as it has the potential to offer much greater rewards.
- You can invest in mutual fund schemes that offer both long and short-term plans.
- Investors can also opt for fixed deposits as it is one of the most secure investment options and offer higher interest rates compared to saving accounts.
- Another popular way of investment is buying gold both in physical and paper forms. While we all know about physical gold, one can also invest in gold exchange-traded funds (ETFs) or purchase shares of a company that mines gold
- You can also invest in other government backed savings schemes like post office savings scheme, Public Provident Fund, government bonds and Sovereign Gold Bond, which generally offer higher returns than savings accounts.
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