WHY KEEPING MONEY IN YOUR SAVINGS ACCOUNT IS THE SAFEST INVESTMENT OPTION?

These days, many people are looking for various investment options to get maximum returns on the money that they don’t intend to use in near future. Having said that, a majority of people still consider the money into their savings accounts as the safest investment option, thanks to the risk that comes with other investment options such as stocks, mutual funds etc. By and large, these people are quite satisfied with the modest interest rates of 4% to 6% offered by the PSU banks and private sector banks, respectively.

Are you looking to invest the money of your savings account?

If you are looking to invest the money of your savings accounts then you are obviously unaware of the fact that the money of your savings accounts is already an investment. Here is how: In simple terms, an investment is just putting aside a specific amount of money for future use with the hopes of getting a return on that money. Whether it is stocks or real estate, you can invest in anything that can give you a higher return on your money in future.  Generally, you have to consider three important factors while making an investment.

Here is a brief account of each factor.
1) Rate of Return
2) Risk Involved
3) Liquidity

Rate of Return

The amount of return on your money that you can reasonably expect with your investment is the first thing that you generally consider while choosing an investment option. For example, over a long term, a reasonable rate of return on an investment in stock market is 7%, whereas the rate of return from keeping your money into your savings accounts is 3%-6% currently.   

Risk Involved

The risk involved with a return on an investment is another key factor that influences your decision to make an investment into a particular asset. When it comes to stock market, there is a high amount of risk involved, especially for the short term investment. So, if you want to invest your money into stocks for a short time period, you are most likely to lose a major amount of money that you have invested. However, if you put that money into a savings account, you will surely get 3%-6% interest on the amount that you have maintained for a period.

Liquidity

The liquidity of your investment is also an important factor that you often consider while making an investment.  In simple terms, liquidity refers to easy access of your funds when required. When you choose to keep your money into your savings accounts, you have the option to take out your funds whenever you need through an ATM or online funds transfer facility of NEFT & RTGS, whereas in stocks, you have to first contact a broker, who will charge commission to sell your shares.  When it comes to cash deposits, you have to incur losses for cashing out early whereas in real estate, you first need to find a buyer.

As you can notice, keeping your money into a savings account meets all the aforesaid requirements of a good investment. There is no risk involved with the savings account. Also, it ensures you a decent return on your money with the facility to withdraw it according to your own convenience.   
There are many other investments options which are as good as keeping your money into your savings accounts. For example, Money Market Funds, Banks Fixed Deposits, Bonds, Debentures, Mutual Funds etc. Now you might be thinking that which one of these is the best for investment.  

Here are a few simple rules of thumb to compare different investment options.

If you need the money in a short time period, you should go for an investment that comes with less risk. For example, if you are saving for your retirements, you can afford a big amount of risk but you are saving to buy a car in a couple of years, you can afford some amount of risk. However, if you are saving to buy a motorbike or a large household appliance, you can’t afford any risk at all.  

If you need the invested money quickly then always choose an investment asset which is quite liquid. There is no point in investing your emergency funds into stocks, fixed deposits or real estate because these investments are especially for a long term; hence they aren’t a good option if you need the invested money quickly. If you need a certain amount at a specific time then you are highly recommended to cut down the risk factor and focus on raising contributions. For example, if you need rupees four lakhs for your marriage, a home renovation, or any else, then investing that amount into a risky investment is not a wise decision at all because that risk can rob you from your hard earned money. So keeping that amount into your savings account for a lower rate of return is a prudent choice as it comes with no risk and also gives you an opportunity to increase savings.  

While the rate of return is big factor in choosing an investment asset, you should never undermine the importance of liquidity and risk involved in a particular investment. Always consider all these three rules of thumb while choosing an investment asset and go for the one which offers you best rate of return for your money with minimum risk and maximum liquidity. The savings accounts meet all parameters of a good investment. Hence they are the perfect investment choice.  

Private Bank Saving Account VS Public Bank Saving Account

Making a choice between the private or public sector banks depends on two factors: The interest rates offered by the bank and Minimum Balance Requirement for the Savings Account. If you want more interest on your balance then you should open savings account in a private banks because they offers an interest rate of upto 6% provided you maintain the minimum balance required.

The minimum account balance that you need to maintain in a private bank’s savings account ranges from 5 to 10 thousand and you are entitled for the interest only if you maintain the minimum balance in your account throughout the financial year. Keep in mind that the non-maintenance of minimum account attracts financial penalties in a private bank so open a savings accounts in a private banks only if you can meet their minimum balance requirement.

If you can’t meet the minimum balance requirements in a private bank then you can open a savings banks account in a public sector banks whose minimum balance requirement is quite less in comparison to private banks.

In public sector banks, you just need to maintain a balance of 1 or 2 thousand rupees to earn the interest rate of upto 4%. 

Mr. Pawan Jangir can also help you in opening a no frills (zero balance) Savings Accounts in Adarsh Credit Cooperative Society. To know more about Mr. Pawan Jangir, please visit his website: http://www.pawanadarshcredit.com