Some have the belief that socking money away in the bank is the best way to grow their money. With the banks now giving a paltry interest of 0.05% to 1%, a savings of $100,000 put in an account yielding 1% for the next 10 years only gives us $110,462. Hardly enough. When we take into account the invisible-money-eating beast named “Inflation”, we actually have a negative return by leaving money in the bank. Taking into account that inflation averaged at 2.8% in Singapore from 1962 to 2013. Money sitting in the bank is being eroded at a rate of 1.8% per annum.
With that being the case, why do most people, especially the older folks, have the belief that putting money in the bank is the Holy Grail method to increasing their wealth? I think I have the answer.
I came across this image in one of the local forums.
It basically is an advertisement showing that POSB (now DBS Group Holdings Limited, SGX: D05) gave an interest of 8.5% per annum for deposits up to $100,000 and 6% per annum for deposits above $100,000. The rates were effective 1st December 1980. I wanted to verify if the image is legitimate. The advertisement is indeed real. If you look at here, you can find a digitized version of a The Straits Times article dated 5 December 1980, with the title “POSB ups interest rates to 8.5 and 6 pc”.
Such advertisements could have brought about the mindset that saving money in the bank is the safest, when the contrary is true.
So, what can ordinary folks do to grow their money and beat inflation?
One can invest in the STI ETF (SGX: ES3). This exchange-traded fund (ETF) has produced an annualized returns of around 10% for the past ten years, excluding dividends. The same $100,000 would have grown to $259,374. If you include dividends, the returns would be around 13%.
Another way is to buy the banks itself, or part of the bank. Oversea-Chinese Banking Corp Ltd (SGX: O39) has returned 7% per annum for the past ten years, excluding dividends.
Therefore, we have to be mindful that socking money in the bank depletes our wealth away, due to inflation. We have to learn to invest wisely to grow our kitty. Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.
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Some have the belief that socking money away in the bank is the best way to grow their money. With the banks now giving a paltry interest of 0.05% to 1%, a savings of $100,000 put in an account yielding 1% for the next 10 years only gives us $110,462. Hardly enough. When we take into account the invisible-money-eating beast named ?Inflation?, we actually have a negative return by leaving money in the bank. Taking into account that inflation averaged at 2.8% in Singapore from 1962 to 2013….