What are the costs of keeping money on a bank account?
Example with 25,000 CHF
It's safe to say that keeping money in any of the Swiss banks is safe, but at what cost? The interest rates are low, almost non-existing, but at least your initial savings are intact. Right?
In reality, you will have less and less over time.
Here are the three main costs that everyone face by "docking" cash on a bank account.
Bank fees refer to all the costs the bank charges you for keeping your account running. With a few bucks a month that can be up to 100 CHF in fees per year.
Inflation worsens your buying power over time. This means that each year you can buy a bit less with the same amount of money.
Opportunity costs describe all the things you miss because the money sits on your account.
How does inflation affect my money?
With the current inflation rate in Switzerland, your money loses 0.8% of buying power every year. This means that each year you can buy 0.8% less. 🇨🇭
What’s does 0,8% inflation rate mean in practice? 🧐
Let’s say you have CHF 100’000 on your account. In ten years this money would only be able to buy stuff in the value of CHF 92’282. CHF 7’718 of buying power would be gone because of inflation.
When inflation rates go up (which they might do, since the national banks printed a lot of money), the loss of buying power would be even higher.
What's an opportunity cost?
Opportunities are the things you miss because the money sits on your account. There are basically two categories: a) missed you and b) missed investments.
Missed joy means that you keep money on your account instead of, for example, going away for holidays or buying a new laptop.
This lost opportunity cost isn't very important, because you might just be postponing bigger purchases for later. However, since inflation is affecting your money, your buying power gets smaller over time.
Missed investment opportunities is the money you might have gotten if you would have "put it at work".
What "put at work" means exactly depends on how much risk you should take – e.g. buy shares in companies, or give out a loan with an interest.
How much is the missed opportunity cost for 100,000 CHF?
Let's say you can make 5% every year by investing your money in the long run (the Swiss stock market SMI made xyy in average over the last 10 years). On 100’000 that's a staggering 62’889 or 62.89% This means you easily lose a couple of 1000s (because of inflation) but a couple of 10000s due to opportunity costs.
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