You’ve seen the light. You’re done with the days of “ubos biyaya, bukas kawawa” and spending like there was no tomorrow. You’ve decided to be good and save, save, save! Congratulations!
Where to keep it? If you’ve just started building the habit of saving, savings accounts are great. They’re safe, insured, and there’s something about going into the bank that gives you that feeling of accomplishment. As the money grows, however, it becomes less of a good idea and can even block your path to financial freedom!
Here are three reasons why:
1. No pressure to make regular deposits, too easy to withdraw.
If your savings account just comes with an ATM card, you’re probably not really thinking of it as a savings account. It’s just an electronic wallet where you’re keeping your money safe from snatchers, robbers and your moochey so-called friends. In an ATM account, the money may be safe from them, but not from you.
A passbook-only account is a bit better (albeit a bit old-school). Seeing those numbers grow on the booklet can be quite encouraging, even addictive. Plus, the look the teller gives you when you withdraw everything except the minimum maintaining balance can be quite a deterrent. Still, it’s still too easy to get to– with no real penalties for you when you break your solemn vow to save.
2. Your money is just sleeping- with minimum interest.
In most Philippine banks, a regular ATM account pays no interest at all. Special ATM savings accounts with large deposits and passbook accounts pay at the most, .025 percent per annum. That’s right: one-fourth of 1%. Per year.
If you still have no idea what that means, consider this: At .025% per annum, your money will double via interest income in 288 years. By the way, interest income is taxed here, so it may take a tad longer.
Sure, if you save around 50,000- 100,000, chances are, some banks may increase your interest rate to 0.5 percent. Yay! It now only takes a little more than just 144 years (with tax) for your money to double!
With the inflation rate pegged at 2.8%, you’re still on the losing end even if you reach the maximum.
3. There are better, higher growth options for your money.
High Yield and Special Deposit Accounts. Banks in the Philippines also offer this cross between savings and time deposit accounts. Minimum initial and maintaining balances here run from 50,000-100,000, and only 2-3 withdrawals are allowed a month without penalties. If the money you’re saving is still part of your emergency fund, it’s still better to keep it here where it can earn more.
Time Deposits. One of the safest options with guaranteed interest, it locks up your savings for prescribed time periods (from 1 months to a year) with various interest rates from 2.125% -2.375 % depending on tenure.
Mutual Funds/Unit Investment Trust Funds. Also called a common trust fund, a fund manager pools the money of different depositors, and then invests it in various financial instruments and markets. Available in various forms with various levels of risks and returns.
The Money Market. Dealing with fixed income securities, this is considered one of the safest investments available. The easiest way to gain access is through funds run by banks and other financial institutions.
The Stock Market. Put simply, you earn money by investing your money in shares of publicly traded companies. It can be relatively safe or risky, depending on your investment style. There is a major learning curve, but it does pay off.
Forex Investments. Currently popular, this type of investment, pegged on movements between currencies can pay off if you do it right. But again, there is a learning curve. Make sure you get proper training if this is what interests you.
If you’re really intent on building up a nest egg, go beyond saving and invest. There are many options, from putting up your own business, to various financial instruments and markets. Read up, ask around, check them out– you’ll find one that’s right for you.