I was driving home the other day when a radio ad caught my attention.
“Lock in great interest rate of 0.04%…”
And I was like…since when is 0.04% rate of return became a big deal?
Banks are such crooks.
In order to understand why this radio ad is misleading and potentially a fraud, we need to understand how banks work.
Most of us have an interest-bearing savings or checking account with some banks, right? What is your interest rate?
I have a personal checking with FHB and I received a grand 0.04% interest. Wow…big deal.
I recently requested a personal line of credit from FHB, my interest rate on this line of credit is 3.74%. It’s a pretty good rate because I have good credit score.
So banks “borrow” money from you for almost free, then lend your deposited money to other consumers at a higher rate.
You might be thinking at least you’re getting something in return.
Inflation rate has been around 3.3% per year…if you leave your savings with the bank earning 0.04%, you’re actually having a net loss of 3.36% each year in buying power.
So there is no difference than stuffing your cash under the mattress or in the freezer. So keeping money in the bank is NOT investment. It’s not even a good place to park your emergency fund.
Remember…number 1 rule is “never lose money”!
Are there better ways to park your money?
I understand the bank savings account “feels” safe, but, like I just show you, you’re losing money from inflation. “Safe” means you don’t lose money.
That’s why I put just enough money in my checking account. And I don’t even bother with a savings account. Instead of a savings account, I have brokerage accounts and cash value life insurance.
Related article: How to Be Your Own Bank?