Should Your Long-term Savings be in Banks?
Before I start a dispute whether long-term savings should be put in banks or not, let us first discuss the difference between short term and long term savings.
Clearly, not all of our financial goals are the same. From that newly-released Samsung Galaxy S9 to that two-story modern house, the latter may take some time to realize than the former depending on the amount of money needed and the target period desired. Thus, our financial goals shouldn’t be approached the same way for these financial targets should be principally identified as short-term or long-term in order to know the best financial vehicles to reach those dreams.
But what really is the difference between the two? Well, it’s pretty much obvious, isn’t it?
Short-term goals are your immediate expenses. The timelines of such goals may vary, but these are the things that you’ll generally spend within days, weeks, months or a year. Saving for a vacation, buying a gadget or paying for a monthly tuition are examples of short-term goals. On the other hand, long-term goals are those aspirations which may take several years or even decades to achieve. This includes saving for a dream business or preparing for retirement.
According to Bro Bo Sanchez, there are only two kinds of money that should be put in banks, Business Money and Emergency Money, and I totally agree with it. Don’t get me wrong, I also love banks. I use it to pay for my monthly and quarterly bills conveniently and to have something to turn to in case of contingency and emergency. Through it, I can withdraw money in just a snap, but I would never put my long-term savings in it.
Know why? Mainly because of Inflation and Bank’s Low-Interest Rate
Inflation is the rate of the decreasing purchasing power of a currency due to the increasing prices of common goods and services. Currently, Philippines’ inflation rate is projected to stand at 4.40% in 12 months’ time from its 3.0% average annual inflation in 2017. Considering the average annual interest of banks with at most 1.125% (including the time deposits), inflation surely overpowers the rate of interest the bank offers. Well, my bank offers 0.25% interest per annum, how cruel is that? Do you think that could beat the inflation rate if your financial goal is for long-term, not to mention the underlying bank taxes that you have to pay?
There are many factors to consider when you are after long-term savings, but the most important factor to take into account is beating the rate of inflation. Mutual Funds, UITF, and Stock Market are several avenues which are best for long-term savings. The level of risks of these investments may vary due to inevitable volatility and fluctuations, but historically, these investment vehicles always show an uptrend in the long run, averaging with 5-10% annual interest.
Well, I am not discouraging you to withdraw your deposited funds in the bank. Banks are our friends. They make our lives easy as financial transactions become more digital. However, it is not the best avenue to save up for long-term for these establishments only use your money for investing in other assets, in return for an insignificant amount of interest for your account.
I agree. I put all my savings in cooperative,they have bigger interest cmpared to bank.i am stil learning mutual funds i love Bo he is 1 of the best with financial advocacy. Thank you for this informative post😊😊😊
I am an investor of Mutual funds and Stock Market, and I am using COL Financial at the moment for both. Mutual Funds is one of the best financial vehicles especially for those who are new in longterm investments since experienced fund managers are the ones to pick the right stocks for us.
You are most welcome @orhem! What cooperative are you into at the moment by the way? And how much is the interest rate?
wow! we just recently opened an account with COL and still attending seminars to learn as a starter. I am still learning how it works. Its near in our place, the dividend depends of the income of the coop assets like grocery,water refilling stations, bakeries. They release it annually but so far I am happy with their interest rate with savings. I'll ask my husband how much is the rate, he's more into this kind of stuff than I am ahahah.
wow that is great! as long as that coop has a strong financial background, then I believe you are in the right hands. If you want to learn more about the Philippine Stock Market, I suggest you start reading Bro Bo Sanchez' "My Maid Invests in Stock Market and Why You Should Too". I find that book very helpful as I entered my journey in the Philstocks. He also included tutorials on how to navigate your COL account there. Happy Investing!
Yes I subscribe to Bo's newsletter and it's very helpful. I've heard a lot about the book and will certainly buy it. Thank you for the advise @smaeunabs. Appreciate it.
You are welcome @orhem :D I wish you all the best for your financial journey.
Here's a link to that free e-book:
http://www.asensofilipino.com/uploads/1/4/6/5/14653624/my_maid_invests_in_the_stock_market.pdf
Yey! You're so kind. Thank you for the good read E-book.
I'm on the process of learning na to invest.. hope next month.. thanks for being a brilliant financial consultant..
Yaaay I'm excited about that financial journey of yours. Don't you worry, I will start posting about the best financial vehicles that you can choose from soon. Happy investing!
I agree most people shouldn't leave all their long-term savings in cash. Not too sure about the Philippines, but in most of the world you can buy stocks, ETFs, mutual funds, market-linked GICs and derivatives through banks and financial advisors who are employed by banks. Credit unions are often favored by some people and may be good for deposit accounts for funds required within your community but every single rich person has money at a big bank. Banks also provide you with access to capital and are often necessary for complicated corporate accounts and advice.
As far as I know, Philippine banks offer UITFs, I don't really know much about the other investments they offer. But reading this comment, I believe there are still options other than time deposits and UITF that could maximize the earning potential of our bank savings in the long run. I just have to dig deeper into this matter.
Thank you so much for sharing your thoughts @crypticat :D
miss @smaeunabs, what are your thoughts on Insurances, like Sunlife or Kaiser?
Hmmm I believe life insurance and health care should be established first before you start investing. This will serve as your financial protection against life's uncertainties, especially if you are the breadwinner of your family. It is better to be protected while you are still young and able to pay for it. You may not be able to appreciate it at the moment, but you'll thank yourself few years from now.
Aside from that, I am pretty sure you don't want to pull out those investments that haven't ripened yet. Thus, it is important to have those safety nets to have something to turn to without going back to square one of saving and investing.
Well thank your thoughts on investment. It enabled me to be enlightened once again for my financial plans.
Ps. Masunggo man sab ta sa last paragraph hahahahaha
Yaaaay my pleasure @josephace135 :D If you have further questions, pwede ragyud kaayo ko nimo mareach on discord anytime. Happy investing!
Kombati miss @smaeunabs! Daghang salamat.
Very great post man, its true. Saving long term in the bank is not a good idea, the interest rate that the banks pay you is pathetic and the inflation is like 5-10 times higher than the interest so you are actually losing money if you save them in the bank. A lot of my assets I am investing are in cryptocurrency like Bitcoin, Litecoin, Ethereum, Steem, Ripple, Vertcoin, Neblio, etc. Which are tech that I highly believe in and for long term gains. :)
I also believe Cryptocurrencies are great for long-term gains @denoxblogger, especially if those coins have great fundamentals. However, due to the uncertainties of the market, I think it is best to look for other assets which have lower volatility. We just have to diversify our wealth somewhere in order to strike a balance just in case Cryptos are in their bearish state.
Thanks for dropping by @denoxblogger!
Hi mam :) what company do you recommend in opening mutual funds? I'm at lost where should I open a mutual fund...
Hello @emdesan! There are great companies like FAMI and PhilAm, and Sunlife. Just recently, COL Financial, an online broker, added a Mutual Fund investment in its site. That will leave you a choice whether to buy stocks yourself or just invest in mutual funds.
Hi @smaeunabs are you in Steemph discord? Can you teach me how to invest in COL Financial please? :)
Agree shei!!! Aja! Shei naa pod Cooperatives ^_^ recently, 15% sila for 2017. So far sa ila announcement pag annual gathering, minimum of 12% na sila starting 2018.
wooow grabe, sa unsa ni man mao ni katong NutriWealth?
Oo shei, NW paman so far amo gi joinan nga coop for now. Since very limited na kaayo ang ma benefits kung mag CFI mi.. too late na kaau :( 30% unta per yr sa CFI shei.
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