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Savings accounts: why they can put your retirement money at risk

By Andrew Hallam - March 07, 2023

Savings accounts are great ways for banks to steal your money.

In most cases, the money doesn’t disappear.

It just dissolves like a penny… immerged in a cup of acid.

Some of you might be thinking, “This guy is way offside!”

It’s true that if you’re saving money for a down payment on a home or keeping 3 to 6 months of accessible living expenses as an emergency fund, then money in a savings account serves a solid purpose.

But never let your retirement money erode in a bank account.

It will lose to inflation.

You might be tempted by the promise of higher bank interest rates.

Perhaps you’ve seen an advertisement for a two percent rate.

Maybe it’s three percent or four.

But inflation in the UAE hit 6.7 percent last year.

Some say it was higher.

That means the rising prices of shawarma and hummus ate the banks’ interest rates for lunch.

When a bank offers interest, it uses savers’ money to earn higher rates for itself: on mortgages, credit cards and other loans.

If the posted interest rate on a savings account is really high, there’s often a catch.

It might be a short-term lure, where the rate changes later.

Or, that money could be locked in for a designated time.

The bank bets on three things:

  1. You won’t think about inflation
  2. You will lose to inflation when you park your money with them
  3. The bank will use your money so the bank can beat inflation

I still remember my first savings account.

It was 1981.

It paid 10 percent.

But Canada’s inflation rate (that’s where I was living) was more than 12 percent that year.

So my money underperformed the rising price of liquorice, double bubble gum, and AFX electric racing cars.

Of course, I was just a kid.

I wasn’t saving that money.

But the bank still won.

In contrast, owning a business is the best way to match or beat inflation.

That’s because you can increase the prices of the goods you make or sell.

And the easiest way to own multiple businesses is with a diversified portfolio of low-cost index funds.

Stocks, in fact, are the best inflation fighters.

They won’t rise every year. Nor should you always want them to.

But when they rise, they often soar like rockets.

If your money is parked in a savings account as you wait for “better times” you’ll likely be left behind.

That’s because stocks can rise 10 percent or more in a single week.

Money stuck in a savings account will miss that gain.

Here are a few calendar year examples for the global stock market, measured in USD.

Global stock market returns

  • 2021: 18.27%
  • 2019: 28.21%
  • 2018: 18.52%
  • 2013: 26.59%
  • 2012: 18.34%
  • 2009: 30.4%
  • 2006: 23.11%
  • 2004: 18.27%
  • 2003: 38.08%
  • 1999: 29.04%
  • 1998: 27.58%
  • 1995: 20.73%
  • 1993: 25.25%
  • 1991: 18.42%
  • 1989: 24.15%
  • 1988: 20.56%
  • 1986: 45.35%
  • 1985: 51.83%
  • 1983: 25.37%
  • 1980: 21.85%
  • 1978: 24.32%
  • 1975: 32.44%
  • 1972: 28.21%
  • 1971: 18.52%

Source: Morningstar Direct

You’ll never know, in advance, which years will offer huge gains.

Nor should that matter.

Including all the ups and downs, the global stock market gained 17,939% from 1970-2023.

Write that down and tape it on your fridge… or facing your toilet seat.

Over time, stocks rise far faster than the cost of living.

Bank savings accounts do not.


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Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.