Why your retirement savings in the bank aren’t as safe as you think, can Fintech help?
Many of us have been taught that putting our money in a steady and safe interest savings account is our best option for retirement, but is it?
Well, from what we’ve seen over the last 10-15 years it’s become evident that this is no longer true.
From depositors losing 47.5% of their savings in Cyprus to savings of £4bn belonging to about 250,000 British customers being lost by the Icelandic bank Icesave, there are many examples of banks around the world who have collapsed and ended up losing their customers’ hard earned savings.
The worst part is these aren’t just rare occurrences that happen to the unlucky few, pretty much everyone is susceptible to this risk, especially people with large amounts of capital ($100,000+) in the bank.
Interest rates have plummeted
Not only are the banks no longer a safe place to keep your money, but the interest you’re receiving for keeping your money there is now abysmal.
Central banks around the world have constantly been slashing interest rates and these low interest rates are now looking set to continue for a while. The days of receiving 5% interest a year are long gone! Nowadays many people will be lucky to get 2% a year at a push.
Inflation is eating at your money
Only receiving 2% a year also puts you at a big disadvantage because you’re now losing out to something called inflation. Inflation can be defined as the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. The average annual inflation rate in most countries is around 2-3%.
To give you an example of how inflation works let’s imagine you stuffed a £10 bill in your old wallet in the year 1990 and then forgot about it. The cost of petrol during that year was around 40p per litre, which means you could have purchased 25 litres with that £10 note. Thirty years later in the year 2020, the cost of petrol is around £1.20 per litre. If you found that £10 note in the year 2020 and purchased petrol, you would only be able to purchase just over 8 litres. Despite the £10 note remaining the same value, it lost its purchasing power by around 68 percent over the 30-year period.
So essentially, if you’re earning less than 2% in interest you’re actually losing money by keeping it in your bank account.
Not understanding these principles is why many people around the world are struggling to retire with enough money. CNBC found that 42% of Americans are at risk of retiring broke.
So what do you do?
In order to retire with sufficient enough money you have to put your money to work. This is what separates the wealthy from the poor. Wealthy people know that in order to build their wealth they have to invest their money and not leave it lying in a bank account.
You may now be thinking ‘But I have no idea how to invest!’ Well, if that’s you, don’t worry. There are a variety of solutions you can use to invest passively that require little to know work, little knowledge of the financial markets and require only a small amount of capital to start.
Some of your options:
Index funds are one of the most popular choices for people looking to build their wealth. An index fund is a portfolio of stocks or bonds designed to mimic the composition and performance of a financial market index. Rather than investing in individual stocks, you’re investing in an entire index, making it a great passive investment choice.
Over the years index funds have historically returned an average of 10% annually, before inflation. However, the markets often fluctuate, as we have seen during this coronavirus pandemic. Although they are generally a great choice for building your wealth, you have to be willing to leave your money in the market for a long period of time.
A relatively new investment vehicle, these solutions typically use artificial intelligence and algorithms to automate trading activity. One company that offers automated trading is 8topuz. They are an award-winning and accredit business who have been producing returns of between 24-48% a year. Producing significantly higher returns than the stock market they make one of the best investment vehicles to build wealth quickly.
Cryptocurrencies are another passive investment option you can hold. There are many choices when it comes to cryptocurrency, but Bitcoin is the best known. Cryptocurrency is very much an emerging technology which has the potential to become a very profitable investment. However, it’s very much a high-risk, high-reward opportunity. Therefore it’s not recommended to invest a large amount of your money into cryptocurrencies.
When it comes to investing and growing your retirement pot, you need to make sure that you don’t leave all your hard earned money lying in a bank account. Whichever investment option you choose, they will all help in building your retirement pot and enabling you to retire more comfortably.