Why Is Your Money Not Growing in the Bank? 6 Important Things to Know
When you open a savings account, you might expect your money to grow steadily over time. However, for many everyday consumers in the Philippines, this expectation doesn’t quite match reality because just keeping money in the bank offers minimal growth. This can be disappointing if you’re hoping to build your wealth.
If you’re wondering why your money isn’t growing as much as you’d like, here are six essential things to know—plus some alternatives to further increase your savings:
Your Savings Account Earnings Are Limited by Low Interest Rates
Most traditional savings accounts in Philippine banks offer very low interest rates, often as low as 0.1% to 1% per year. This is because banks view savings accounts as a safe and stable product that gives people an easy way to store money while retaining instant access to their funds. Most of the time, banks use these accounts as a low-cost source of funding so that they can issue loans to other customers.
For your savings to grow significantly, you’d need an interest rate that matches or exceeds inflation rates—something a standard savings account offered by a traditional bank simply can’t provide. It’s more likely for you to enjoy the benefits of high interest rates when you open a savings account with a digital banking services provider like Maya. This particular savings account has a base interest of 3.5%, which can be increased up to 15% p.a if you meet certain criteria.
Inflation Eats Away at Your Savings’ Value
The Philippines, like many other countries, experiences regular inflation. This refers to the gradual increase in the prices of goods and services over time, which affects the value of your money. When inflation is higher than the interest rate offered by your bank, then you’re essentially losing purchasing power.
For instance, if inflation is at 4% per year but your savings account only gives you 1%, your money’s real value is shrinking by 3% each year. Many Filipinos don’t realize this gradual decline in value and end up disappointed with how their savings are growing. To preserve and grow your wealth, consider alternatives that outpace inflation, such as investments in government bonds, mutual funds, or high-interest accounts in digital banks.
Some Banks Offer Better Rates on Other Products
Many banks offer higher interest rates on products that aren’t regular or basic savings accounts. For instance, in exchange for taking away immediate access to your funds, a time deposit account offers better interest rates. Local time deposit products can yield anywhere from 1.5% to 3.5% depending on the term, which can last anywhere from 30 days to several years. For instance, Maya’s Time Deposit Plus offers 5.25% p.a for a three-month period, 5.75% p.a for 6 months, and 5.50% p.a for 12 months.
So, if you have money that you don’t need to use right away, then this type of savings program could be a more productive choice for storing your extra funds.
There Are Investment Alternatives to Bank Savings
If you’re open to more than just bank savings, there are investment options available that can provide higher returns. Money market funds and mutual funds are two examples that allow you to invest in a mix of securities managed by professionals. These funds often offer higher returns than typical savings accounts, though they come with some risk.
Similarly, government bonds are relatively safe investment options backed by the Philippine government. These usually pay out interest higher than savings accounts and have fixed terms, though the returns are more conservative compared to other investments. You can purchase bonds directly through government channels or from banks.
It’s Very Important to Gain an Understanding of Risk and Return
There’s always a trade-off between risk and return in any financial product. Traditional savings accounts are extremely low-risk, but they provide minimal returns. On the other hand, products like mutual funds, UITFs (unit investment trust funds), and stocks offer higher returns but come with varying levels of risk.
Before choosing an investment, consider your personal risk tolerance and your financial goals. If you want a hands-off approach, UITFs are a great way to invest in a diverse portfolio that a professional can manage on your behalf. You can choose from different UITFs (like equity or balanced funds) that align with your risk tolerance and provide the potential for higher returns.
Diversifying Your Savings Can Be Beneficial to Meeting Your Financial Goals
Relying solely on a traditional bank account is unlikely to give you the growth you need to build long-term wealth. That’s why diversifying or distributing your money across different products is a smart strategy. By putting some money in safe bank accounts, some in time deposits, and some in investment products like mutual funds or bonds, you can achieve a balance of security and growth.
If you’re seeking minimal risk but higher interest rates than typical banks offer, consider high-interest savings accounts from digital banks like Maya. These accounts don’t have physical branches, which lowers their operational costs. This allows them to pass on these savings in the form of higher interest rates to customers.
Understanding why your money doesn’t grow in a bank is the first step toward making more informed financial decisions. By diversifying your savings and considering higher-yielding alternatives, you can maximize the growth of your funds over time. Whether it’s through time deposits, bonds, or digital high-interest accounts, you have options that can help your money work harder for you.
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