Stacking Money In a Regular Bank Or Credit Union Is Unwise
But in a bank, my money is insured, you’re thinking. What a lunatic. Before you write me off as crazy and navigate away from Bottom Up, hear me out. The risk to your money is inflation, and ladies and gentlemen, it is not just this distant concept you slept through in Economics. It is a real thing, and it can make the difference between financial security and panhandling in retirement. Whomp, whomp. While it’s still great that you’ve got this chunk of money that you wouldn’t have had you not delayed your gratification, it’s been slowly but surely eroded through that nasty inflation. Not only was all your interest earned eaten away, but you have $136.68 less purchasing power than what you actually saved. Compounded longer and contributing regularly, the devastation to your purchasing power is even more profound.

How Inflation Makes You Lose Money
Here’s what happens when you put $1000 into the broad index that is averaging an 8% annual return, vs a savings account (or CD, or similarly-yielding) and let it compound for 10 years at 2.5% inflation.
Savings vs. Investment |
8% Investment |
1% Savings Account |
Starting Balance |
$1000.00 |
$1000.00 |
Dollar Amount At 10 Years |
$2219.64 |
$1105.12 |
Value In Today’s Dollars |
$1733.98 |
$863.32 |
Net Gain |
+$733.98 |
-$136.68 |
Whomp, whomp. While it’s still great that you’ve got this chunk of money that you wouldn’t have had you not delayed your gratification, it’s been slowly but surely eroded through that nasty inflation. Not only was all your interest earned eaten away, but you have $136.68 less purchasing power than what you actually saved. Compounded longer and contributing regularly, the devastation to your purchasing power is even more profound.
Should Savings Accounts Be Outlawed?
Now, this isn’t me saying savings accounts, CDs and bonds are evil all the time. In fact, if you are saving for a shorter term goal, such as buying a house, the stock market is most likely not a wise place to put your money, especially if you don’t know what you’re doing. But when you’re building wealth long term (which is the goal here, right?), either for financial freedom or retirement, these “safe spaces” for your money are simply not as safe as most people believe.
Ready To Build Some Real Wealth?
Wealth building tip: open your Roth IRA at a brokerage firm, not your bank. Most banks do not have the option to buy investments that will actually gain value over the years. For more on the benefits of a Roth IRA and my recommendation on where to open one, see the step-by-step-tutorial: How To Open Your Roth IRA (And Why You Need One).
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