Keeping money in banks has always been a staple activity for households. In fact, among Filipinos, it is one of the popular ways to save and grow money. In the 2017 Financial Inclusion study by the Bangko Sentral ng Pilipinas (BSP), about 15.8 million Filipino adults have formal bank accounts. This accounts for at least 22% of the country’s total population in 2017.
If we will dig deeper into the statistics, we can see that 62% of these Filipino adults with formal bank accounts only keep at least P5,000 and below as bank balance. Following the statistics yearly, still, 38% of Filipino depositors put their money in banks with balances ranging from P5,000 to over P500,000.
Now, I have to make a disclaimer about the title. I am not saying that we abolish and boycott the banking systems. These financial institutions have by far proven to be very important part of any country’s economy. We will discuss the points here under the context of growing money for long-term purposes.
What is your financial goal?
For us to communicate, the first question to ask is “What is your financial goal?”
Financial goals differ for each person and his life stage. When I coach Filipino breadwinners, I usually get answers like:
- Emergency fund
- Buying a home
- Travel fund
Each of our financial goals can be classified into any of three (3) time frame: Now, Soon, Later.
- Now – those financial needs / goals that will be used within the next 3 months, i.e. emergency fund, travel, big purchases
- Soon – those needs / goals that should be prepared for in the near 5 to 10 years, i.e. buying a home, home renovations, wedding, children, early retirement
- Later – those needs / goals that should be prepared for in more than 10 years, i.e. retirement, college fund, business, estate
Pros of Putting Money in Banks
Most people put their money in banks for safetyreasons. Instead of bringing cold cash wherever they go, it is very convenient to have your money kept in banks and just withdraw what you need from the automated cash dispensing machines.
Likewise, there are many people who put substantially their money in banks to lessen the risk of it being lost or spent. Since most banks give a minimum interest for deposits made to them, many depositors choose to put almost all their money in banks.
Cons of Putting Money in Banks
Remember the three (3) time frame classifications of financial goals we discussed a while ago. If your financial goal belongs to the “Soon” or “Later” category, then putting your money in banks should not be at the top of your list.
First, if you have a long-term goal to save and grow your money, putting it in banks will not really help you earn much. Imagine putting your money in a savings deposit account to allow it to earn 0.25% interest per year, when you could consider putting your money in other money market instruments or investments that could yield higher returns.
Second, inflation will not help you a lot when you put your money in banks to grow. In the Philippines, the most recent inflation rate accounts for almost 3.2%. Now, compare this inflation rate with the savings deposit interest rate of 0.25% and you will get the picture. Inflation affects the purchasing power of your money, accounting for the passing of time also.
If you are looking to grow your money long-term so you can achieve your financial goals under “Soon” and “Later”, look for investment vehicles that will help you yield higher returns and beat inflation.
In a recent webinar hosted at PinoyBreadwinners, the point is clear that when it comes to growing your money for long-term purposes, it is wise to not to invest it in banks but rather on the banks. There is a wide difference between merely saving and keeping your money in banks and allowing it to grow to support your long-term financial goals.
Coach Kathy of PinoyBreadwinners is hosting a 5-week live webinar as a continuation of this discussion. The registration is free and open to Filipino breadwinners. The topics cover the PinoyBreadwinner Finance Strategy that works well for breadwinners. Register here to learn more: PBW Finance Strategy