Savings Accounts: The Safest Way to Lose Money?
Introduction
Complaining about the pitiful returns provided by banks’ savings accounts has become a national pastime, but the truth is even worse than most people realize.
The most serious problem is not that the rates are low. The most serious problem is those rates don’t even compensate for inflation.
Historical Data (U.S.)
| Year | Inflation* | Savings Account Return* | Difference |
|---|---|---|---|
| 2005 | 3.40% | 0.48% | -2.92% |
| 2006 | 2.50% | 0.61% | -1.89% |
| 2007 | 4.10% | 0.72% | -3.38% |
| 2008 | 0.10% | 0.57% | +0.47% |
| 2009 | 2.70% | 0.28% | -2.42% |
| 2010 | 1.50% | 0.21% | -1.29% |
| 2011 | 3.00% | 0.19% | -2.81% |
| 2012 | 1.70% | 0.13% | -1.57% |
| 2013 | 1.50% | 0.07% | -1.43% |
| 2014 | 0.80% | 0.03% | -0.77% |
| 2015 | 0.20% | 0.06% | -0.14% |
| * Inflation source: Consumer Price index. ** Savings accounts’ interest rates sources: gobankingrates.com, money.cnn.com, nytimes.com | |||
Inflation causes the purchase value of money to decline. You would need \$123.63 today to buy something that was worth \$100 in 2004 (123.63 = 100 * 1.034 * 1.025 * … * 1.002). Unfortunately, savings accounts have not kept up.
During the past decade, only once savings account rates have been higher than inflation. The same \$100 put in a savings account in 2004 would be worth only \$103.40 today. Compared to inflation, that means in the past 11 years, every dollar you kept in your savings account has lost \$123.63 / \$103.40 – 1 = 16% of its purchasing power.
Or said a slightly different, and even scarier way, historically money you keep in so-called “savings” accounts loses 0.00445% of its value every single day.
Every. Single. Day.
That makes Peer Lending even more attractive…
- Alex Neporozhniy
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