Should I bother chasing savings rates in banks?
We should seek to personalise our financial solutions.
Bank savings rates will be good for the maintenance of liquidity.
Slightly longer-term goals with a fixed date of execution can utilise fixed deposits.
But everything else should be better utilised in combinations of better returning assets.
There is never a short and sweet answer to every personal finance question – different circumstances call for personalised solutions. We could, however, categorise and have certain rules of thumb to guide us along and help us decide whether we should be enticed and attracted by bank savings rates.
The first scenario that many of us would consider is our emergency funds. We need our safety net to be as liquid as possible since that is the first pot of wealth we will tap into during any unforeseen incidents. For this, we would likely have to look towards bank interest accounts that could give us interest rates ranging from 0.05%-3.00%* depending on the conditions fulfilled.
For people with shorter term goals or liabilities that must be paid off in 2-3 years’ time, they could explore targeted rates that banks offer in fixed deposits. On one hand, we will be locking away the sum of money that we will need at a secured 2.8%* for 2-3 years, which is beneficial for people who were able to prepare. In such instances, your financial planner will help to address the amount and type of fixed deposit to set aside into.
For the last group of people whose needs fit none of the above, perhaps we should not be blindly chasing saving rates in banks since there is always an upper limit as to how much the banks are able to offer. In most instances, they are not rates that could beat inflation, which then defeats the purpose of growing our wealth and in return, increasing our purchasing power.
Wrapping up, plan one’s growth of wealth appropriately. Chasing savings rates in the banks can only help us to a limited extent and the onus is on us to best optimise our portfolios, especially with the right professional advice.
*Interest rates correct as of writing
Lin Xiao Xuan
Financial Services Consultant