Returns are ‘negative’ on keeping money in savings account, this formula will explain the complete maths

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    Returns are 'negative' on keeping money in savings account, this formula will explain the complete maths


    Keeping money in a savings account becomes necessary because you can withdraw it immediately when needed. Whereas if you keep money in a scheme, you have to wait till maturity.

    Real Rate of Return:

    Keeping money in a savings account becomes necessary because you can withdraw it immediately when needed. Whereas if you keep money in a scheme, you have to wait till maturity. But keeping too much money in a savings account unnecessarily can completely destroy your returns. In terms of inflation, your actual return can be zero or even negative if you keep money in your savings

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    account for a long time. If there are some such schemes with short term maturity in the market, then savings account can be an option. At the same time, returns are also getting better in them. Due to the short maturity period, there is no special hassle of liquidity, that is, you can redeem it when needed.

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    loss on savings account

    The savings account of most banks is getting interest only from 2.75 percent to 3.5 percent. In comparison, the inflation rate is much higher than this. The current inflation rate (CPI) in India is 6.30 percent. Accordingly, if the interest rate on ICICI Bank or HDFC Bank savings account is calculated from 3.5 percent, then the real rate of return will be -2.63 percent. On the other hand, if you compare the interest on savings account in SBI, then the real rate of return will be -3.34 percent.

    Real Rate of Return = [(1+Nominal Rate)/(1+Inflation)] -1

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    These options may be better

    Debt mutual fund schemes with short term maturity can be a better option than a savings account.

    This includes schemes like liquid funds, ultra short term, low duration funds, short duration funds, overnight funds.

    The maturity period in liquid funds is 91 days. Therefore, the risk is also less in them. There are many good funds, which are giving 4 per cent to 4.5 per cent returns annually. Liquid funds can be cashed within a day if needed.

    One can invest for 1 month in ultra short term. In this category, some funds have given returns from 4.5 per cent to 8 per cent in a year. That is, up to 3 times more than the savings account.

    One can also invest in short duration funds for up to 3 months. In this category too, different funds have given returns ranging from 5 per cent to 7.5 per cent in a year.

    If you want to keep money for 6 months to 1 year then low duration fund is the option. In this category, different funds have given returns ranging from 5 percent to 12 percent in 1 year.

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