It is definitely a wonderful feeling to know that you have a big fat amount in your savings account and that you can encash it at any ATM whenever needed. However, is it really a wise idea to have so much money in your savings account? The answer is no. There are a couple of problems associated with it. Keep reading to find out!

First problem: Negative real returns

The interest rate that you get for the money in your savings account is very less, barely 3.5% per year. Also, there is 7-8% inflation on an average, and if you think keenly on that, you are actually earning a negative real return!

Therefore, your purchasing power gets diminished or reduced over a period.

For example, you happen to sell off an existing property to invest elsewhere. But, due to some circumstances, you don’t really invest it immediately, and the money stays in the account. What happens, in this case, is that you get interest as low as around 3.5%. This rate is way lower than what you could have gained in case you had been smart enough to invest in a liquid mutual fund instead.

What are the solutions for it?

Instead of keeping large amounts in the savings account, keep it in a short term debt mutual fund instead. Deploy the remaining amount according to your financial needs. The Emergency fund for around six months can easily be broken into two parts, and one part can be kept in the savings account while the second part can be kept as a liquid fund.

Second problem: Excess money gets used up/ spent unconsciously

It is a simple ideology of almost every individual. If we have money, we tend to spend it, even in unnecessary places! Whether you want it that way or not, you’ll end up in situations where you’ll spend the money that is there in the account without thinking much.

For example, you will think of purchasing new things such as TV, AC, etc. just because you have cash available. You will tend to eat out more often and use up the money there. To put it simply, you will end up spending the money unconsciously.

How to avoid such issues?

Think of putting money in a SIP. What it does is it takes away a certain share of your money every month and invest it to gain good returns. This would make your money go out of your accessing powers, and thus, you will not be able to spend it in unnecessary places.

Another thing is the problem of online wallets. The money that you add on platforms like Paytm, Amazon Pay, etc. gets used up within no time at all! Avoid it.

It takes a little effort to save money wisely. There is no harm in taking those efforts in order to have significant gains out of it. Start your SIP, keeping its date soon after your salary deposit in the account and try and keep lesser money in your savings account.