Why You Shouldn’t Keep All Your Money in the Bank

One of the most common reasons for keeping money in the bank is the false perception that it’s the safest place. Others are simply not aware of the range of investments available to them or disregard them as risky and not worth the time or effort. You’re also told to save for a rainy day and at the same time you hear the commonly thrown about admonition that money should not be kept in the bank. So, what should you do? First, let’s acknowledge the plain fact that the value of money diminishes if left in a bank. In this blog, we provide all the reasons why and give you tips on what you can do to overcome this.

Low interest rates

Interest rates offered by banks in Singapore for savings accounts are notoriously low. These rates range from 0.3% to 2.93%, with an average across banks sitting at a lowly 0.5%. With such interest rates, the total sum of money you keep in the bank does not grow by much. Interest rates offered by banks are also less than inflation, meaning that the value of money in the bank decreases over time.

Inflation

Inflation measures the rate at which goods and prices rise and this can happen if demand increases, production costs or raw material costs increase. Between 1965 to 2016, the average annual inflation rate, or headline consumer price index (CPI), in Singapore was 2.7%. Global events like economic recessions, dramatic changes to oil prices or a pandemic like COVID-19, can cause significant deviations from this average.

With inflation rates higher than interest rates, the value of your cash is eroded. This then diminishes your purchasing power. In essence, you will be able to afford fewer items over time with the same amount of money.

Cash as a low returns asset class

Cash is an asset class and can be considered a part of your investment portfolio. However, due to its low returns, it should not be treated as one that will help you achieve your medium- or long-term financial goals. Due to inflation, and the depreciation of cash value over a period of time, accumulating money can hurt your chances of achieving these goals. Money that could have been spent on different types of investments like bonds, shares, or property is squandered on idle cash in the bank. You’re experiencing an opportunity cost.

How can I invest my cash?

Start investing by spreading your extra cash across different asset classes to diversify your portfolio. The types of investments available to you as an expat span a wide range: shares, bond, forex trading, property, bitcoin, commodities (e.g., gold, rubber, oil) and offshore investments.

If you’ve determined that your risk-appetite is low, you can choose to park your money in stable, low-risk investment alternatives. While these may not offer high returns offered by more volatile investments, they still help you beat inflation and protect your wealth. Some low-risk options include savings bonds or blue chip dividends-paying stocks. After an assessment of your risk appetite and comparing the returns of each, you are a step closer to investing and making good returns on your hard-earned money!

How much should I be investing?

Now, how much should you keep in the bank and how much should you invest? The answer starts with financial planning: determine financial goals, budget and put away an emergency fund. You still require a savings account from which you draw money from for daily expenses such as food, rent and household utilities. After you subtract your monthly expenditure, what’s left should go into building your emergency fund. This will tide you through unforeseen circumstances like a retrenchment. Once you’ve put adequate money away, you can start investing the rest.

Singapore Expat Advisory helps plan your finances

When trying to settle down in a new country, financial planning can sometimes take a back seat. Singapore Expat Advisory does the heavy lifting for you with its personal financial planning services provided to expats, addressing the unique challenges you face. Find out the different investment options available to you, including education and retirement planning. We equip you with the right knowledge, and put you in good stead to make smart financial decisions. Contact us to start your journey of financial planning.

Singapore Expat Advisory is an advisory platform for Promiseland Pte. Ltd Pte Ltd and are authorised and regulated by the Monetary Authority of Singapore (MAS).

General Information Only This article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any products (including funds, stocks) mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment