What are the costs of keeping money on a bank account?

Example with 25'000 CHF
 
 

It's safe to say that keeping cash on a Swiss bank account is safe, but at what cost? The interest rates are almost non-existing, but at least you are left with what you had. Right?

In reality, you will have less over time.

Here are the three main costs that everyone faces by "docking" cash on a bank account.

 
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Bank fees

Bank charges you various direct fees to keep your account up and running. With a few bucks a month that’s often around 60–120 CHF in fees per year.

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Inflation

Inflation worsens your buying power over time. This means that each year you can buy a bit less with the same amount of money.  

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Missed opportunities

Opportunity costs refer to all the things you might miss because your savings are parked on a bank account.

 

Let’s have a closer look at how inflation and missed opportunities impact your savings.


How does inflation affect my money?

Inflation affects money in all form – regardless if you have it on your account, in cash or invested in something amazing. The current inflation rate in Switzerland is 0.8 %. Roughly speaking, this means that each year you can buy 0.8% less stuff with the same amount of money.

On the first glance, this might seem insignificant. The impact of inflation becomes visible as the years roll by. The rate might also fluctuate: 0.8% is relatively low, but it can easily go up to 2-3 % or even more. 

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Example

Now

Inflation rate 0.8 %
Cash on a bank account 25'000 CHF

After 10 years

Buying power 23’070 CHF
Lost buying power 1930 CHF


Try Selma for free. No strings attached. Just chat with Selma the financial bot to start. 👋


How much does a missed opportunity cost?

Short answer: it depends. A missed opportunity is the most subjective and abstract cost effect of the three. It's an umbrella term for all kinds of unrealised positive consequences.

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Missed joy

Missed joy refers to the "ifs" and "buts" of passing on things like travelling to Bali or buying a new laptop in lieu of letting the cash rest untouched.

This lost opportunity cost isn't the most important; you might be intentionally postponing a bigger purchase for later. The rule of thumb still applies – the longer you wait, the less buying power you have over time. 


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Missed returns

Missed returns are the benefits of investing that you might have experienced, had you "put your money at work".

What it means in practice depends on how much risk you can and should take. 

The options are for example long-term passive investing in "a bit of everything" (that's what Selma can help you with), starting or funding a business, buying specific company shares, giving out a loan, investing in a property or experimenting with trends like cryptocurrency.

It's good to keep in mind that if you don't use your money, your bank will, e.g. to grant a loan to someone.


How much can I lose by not investing?

Depending on what you invest in and for how long, the answer varies a lot, but let's make a simple example. The Swiss stock market SMI made 6.16% in average geometric mean over the last 25 years. 

For the sake of simplicity, and to be a bit pessimistic, here's an example with 5% yearly return.

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Example

Now

Inflation rate 0.8 %
Cash on a bank account 25'000 CHF

Imagined inflation adjusted return
(with the inflation effect deducted)  
+5% / year

After 10 years

You would have in total 40,722 CHF
Your missed return cost 15’722 CHF

 


Letting cash sit on a bank account for years isn't cheap (or wise). Selma helps you to do smarter things with your money.

Should you invest at all?

Selma helps you to figure out if you should invest at all and whether it would improve your whole financial situation. 😎

Where to put my money?

Your wealth fit shows how well your money is split into different things . Selma figures out your ideal cash buffer, how much you could invest and in what.

What happens when I invest?

Once you decide to invest, Selma will trade and manage your investments for you – for one, clear monthly fee.