In a world that often praises the virtue of saving money, the notion that “savers are losers” might sound counterintuitive. After all this is a practice that has been drilled into us from generation to generation. And all with good intention. I even had a “kolo” (used to describe the piggy bank in my local dialect) as a kid… Heck I had several of them. However, my statement above carries a valuable lesson about the impact of inflation and missed investment opportunities, and explores how alternative approaches might lead to greater wealth.
The Cost of Inflation
Savers, while diligently tucking away funds in traditional savings accounts, may not be aware that the real value of their money is gradually eroding due to inflation. Inflation diminishes the purchasing power of money over time, meaning that the dollars saved today may not have the same purchasing power in the future.
For instance, as of November 15, 2023, the national average yield for savings accounts is 0.57% APY, according to Bankrate’s survey of institutions. [Although] many online banks have savings interest rates higher than the national average, most of these online banks have only one or no physical locations and are not as fundamentally strong as the traditional banks making them susceptible to failure.
To prove my point that savers are losers, I am going to use the online bank that currently offers one of the most competitive high-yield savings account APY which is TAB Bank at 5.27% in my example.
If you save $10,000 with TAB Bank, while inflation is running at 3.24% today , despite earning interest, your money’s real value is only increasing by 2.03% annually. So your money is not growing the way you think.
Now a lot of people would not deposit their money with TAB Bank. They would deposit with traditional banks like Chase Bank, U.S Bank, Bank of America, PNC Bank, and so on, because these are fundamentally strong financial institutions. At these banks, savings accounts are earning 0.01% APY today. With a $10,000 deposit, your money’s real value is decreasing by over 3% annually.
Over time, this can significantly impact your ability to afford goods and services.
Missed Investment Opportunities
While savers focus on preserving capital, investors understand the importance of making money work for them. Historical data consistently demonstrates that, over the long term, investments like stocks, bonds, and real estate tend to outperform traditional savings accounts.
Consider the case of real estate. Real estate investments offer not only the potential for appreciation but also passive income through rental yields, and tax write-offs due to bonus depreciation. Unlike savings accounts, real estate investments have the capacity to generate wealth and provide a hedge against inflation.
Encouraging Financial Empowerment
The key takeaway is not to disparage saving but to encourage a shift in mindset toward smart investing. By exploring avenues beyond traditional savings accounts, individuals can potentially build wealth and secure their financial future.
Explore Real Estate Investment Opportunities
Real estate, particularly in multifamily properties, presents a compelling investment option. With the potential for steady cash flow, tax advantages, and appreciation, real estate aligns with the goal of turning savers into winners.
At Westworth Capital, we specialize in providing opportunities for individuals to participate in real estate investments that offer attractive returns. Explore our current investment opportunities and take a proactive step toward financial empowerment. It’s time to break free from the “savers” mentality and embrace the potential for financial growth.
