Do Banks Really Give You Interest?

All of us think that saving is necessary and one must put all his savings in a bank, maybe a fixed deposit. That’s how you make money! I saved money – now that money is making me more money.

Well, it isn’t so simple – banks give you the illusion that you are generating money by keeping your money with them. Let’s look at an example:

I had 1,000 rupees which I would have normally used to buy 100 chocolates, but I thought I’d rather save this and buy more chocolates with the interest that the banks give me. So, I go to my bank and deposit this at a 9% Interest in a Fixed Deposit for 5 years, so that after 5 years I get 1,539 Rupees. Sounds like I am going to make 539 Rupees, right? However, in reality, the world saw an inflation of 10% a year, and now my chocolates cost Rs 16. Let alone buying my original 100 chocolates, I can now buy only 96.

So where did the money for the 4 chocolates go? Technically, you got interest but the rate was lower than that at which the prices for commodities increased in the same period. So, by putting money in the fixed deposit, you ended up paying the bank to keep your money and also lost some money in the process.

A few facts:

• Gold has seen an average inflation of 10% per year bring the price from 100 to 30,000 over 60 years
• From 2008 to 2012 our country saw an average inflation of 9.6%
• Fixed Deposit Interest Rates during this period were around 8% – 9%

If you are looking for places to make money from money, you need to invest. There are a lot of options like mutual funds, shares, debt funds or just simple bullion (precious metals). The only thing you need is a little research on what’s the best option for your situation. I’ll help you understand these methods of investment in future articles 🙂

If you want me to cover a particular topic or have any questions, feel free to leave a comment.