Are you getting the uneasy feeling that your bank is not working for you but against you?
Are you frustrated at the astoundingly low interest rate you’re getting on your savings? And even if the savings rate has gone up recently, and you’re getting the top of the market, when it comes to returns, has it dawned on you that even this rate doesn’t begin to keep up with inflation?
Are you beginning to feel that you need to find an alternative to traditional bank and building society savings accounts?
Well keep with that thought because we have an alternative for you that should keep up with inflation and should keep the value of your money even with the coming price rises.
Banks take your money to make money for themselves
We’re used to thinking of banks as safe places to put our money (at least we were before the 2007-9 crash) and as institutions that give us a bit of a return on our money to make it worthwhile leaving it there rather than under the bed.
But did you know that when you ‘deposit’ your money with a bank, they don’t actually hold it in a vault somewhere for you. In fact, if we all went to our banks right now and asked for them to give us all our money back, they wouldn’t be able to do it. We would probably only get about 3% of our cash.
This is because banks use our money to lend out to other people. And they lend it out over and over again – not consecutively (taking the money back and then lending it to someone else) but at the same time. Your £100 or so is being lent to several different people at the same time. Weird huh? It’s like they make money out of thin air based on the money you have ‘deposited’.
The banks make money from lending your money to other people, and they make a lot more money than they’re willing to offer you in the form of interest. Now on the one hand you could say that it’s fair that they should make a bit more than they’re paying you as they’re a business after all. They have to look at the bottom line. But there’s a fair amount and there’s extreme profits.
Wouldn’t it be nice if you and I got a bit more of a slice of that profit than we currently do?
The other aspect of bank lending that causes problems for us. Using your money as leverage to create even more money to loan out, the banks help to increase inflation.
How does this happen
Well, the more money that is created (seriously, out of thin air) on the back of your real deposits, the more money will be in circulation and therefore the more people can offer to pay for things. This increases inflation while, of course, devaluing the money in your pocket (because you need more pounds to buy the things you used to buy with fewer pounds).
Oh what a joy!
Bank savings mean you lose money in real terms
As you know, the current inflation rate (the rate at which prices are rising over 12 months) is 10.1%, while the very best rate you can get on an instant-access savings account is 1.85%. So that means that if you put your money in that ‘top-rated’ savings account you will actually lose over 8% in real terms through the year.
What’s the fun in that?
It does make sense to put your money aside in savings. It is quite right to have short-term cash set aside just in case, as well as money you invest for the long-term. But it doesn’t make sense to put it into something that will actually lose you money in the short-term as well as the long-term.
Not only that, but you don’t know who the bank is lending your money out to while they give you this paltry return. If you know where they were putting your money (over and over again) you might be shocked. It could be going to all sorts of dodgy businesses and individuals. You’re never asked.
Saving in a bank is a two-fold activity: you’re lending your money to that bank and also holding your money in pounds that are not keeping up with the cost of everything.
Heard of a bank ‘bail-in’? You won’t like it!
Do you remember the Cyprus financial crisis in 2012-13? It was a consequence of the world financial crisis that started in 2008. Cypriot banks failed and customers of those banks found that some of their money – their own money! – was taken by their banks to shore themselves up.
That is a bank bail-in, and don’t imagine that it couldn’t happen here. It could and there are murmurings in various countries about the possibility of bail-ins coming up in the next year or two,
So this means that money you have in your accounts could potentially be nabbed by your bank to keep itself going if it hit the skids at some point. As the financial atmosphere is looking increasingly volatile now it’s something that should be kept in mind when you think of putting your money in a bank but bear in mind the government guarantees up to £85,000 should this happen.
…and what about a ‘bail-out’?
We definitely all remember the 2008 financial crash that saw a few (very few) international banking institutions fail (Lehman’s primarily) and others totter (Goldman Sachs, RBS NatWest etc). They were ultimately saved by us, the tax-payer, pouring BILLIONS into these institutions to prop them up. To give you an idea of the scale of the bail-out, just one bank, RBS NatWest was bailed-out to the tune of £57bn. That’s our tax money that should have been used to improve education, health and infrastructure.
You would think that after all that money and fuss was expended that the banks would have cleaned up their acts. Not so. There’s an ever-present possibility of something similar happening down the track.
Saving pounds in pounds loses you pounds!
As I’ve pointed out above, saving in pounds which are losing value every month (just look at how the price of things is going up) is just not sensible anymore.
Understandably, though, you’ll be asking “where can I put my money then?”
It’s a good question as you need to have savings. You need to have money set aside for short-term exigencies and you also need to put money into investments that will grow properly for your future.
it’s just that savings accounts based on pounds are not good enough to help you with either of those. They used to be all right for short term saving when inflation was low. But now they can’t even perform properly for that.
Gold, on the other hand, has generally maintained its value and, therefore, its purchasing power. If you can put your savings into gold then you should be onto a good thing..
Save your pounds in gold and you get to keep your money
Happily there is a way that you can put your savings into gold, keep up with the rising cost of living, keep your money safe and be able to spend it easily whether you’re buying a coffee or a new car.
You put pounds in and you spend pounds (or dollars or euros or any currency you need to spend in) but the savings that you have are all kept in gold in a secure vault, and you own that gold whatever happens.
We have partnered with Tally here at MoneyMagpie.com because, like you, we are concerned about the devaluing of our currency and the fact that savers are losing out on a daily basis.
This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
