Deposits .. An endemic issue for your savings?

Written by Augusto Quiñones | Oct 8, 2021 9:54:21 AM

Gone are the days when a deposit paid an interest of 3%, 4%, or 6%. Currently, due to the aggressive monetary policies of central banks, returns have fallen to 0% at best (and also less than that).

According to Inverco data, more than a trillion euros of financial savings for Spaniards is currently parked in deposits, representing almost 50% of financial savings. The latest inflation data reported by the INE, of 4% year-on-year, should at least set off the alarms of this group.

Now, does it make sense to save our savings in cash to avoid risk? 20 years ago, when a deposit paid close to 6% and inflation was 3-4%, the profitability was meager but at least the saver was protected from inflation. Then came the crisis in 2011, rates fell to 0% but as inflation also fell due to economic stagnation, the return continued to be resigned, but at least the loss of purchasing power was not so remarkable.

With electricity prices breaking historical records, we must bear in mind that the risk of losing purchasing power due to inflation today is much higher. The conclusions are clear, if we do not invest, inflation eats our wealth: $ 100,000 in 2000 represents $ 65,000 in 2021, a loss of value of 35% in just 20 years. If we extend the horizon until the middle of the last century, the evidence is more overwhelming: around 90% of the value of savings would have been lost.

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