Why your money is losing value in a savings account

Posted at 4:47 PM, Oct 11, 2017
and last updated 2017-10-11 17:41:53-04

You put your money in the bank hoping it'll make a few extra bucks but when you check the balance, it’s barely budged.

Savings account aren't going to get you rich, however, there is an expectation that you'll get a little something back. As it turns out, you could actually be losing out on money by keeping it in a savings account.
The inflation rate is at 1.7 percent. Compare that to what some of the big banks are rewarding consumers for doing business with them, and you are looking at mere pennies.

“So, the same dollar now may buy less gas in a year, less butter, less bread, the basics of life are going to be more expensive so you're losing money by standing still while everything else is moving forward more quickly,” said J.P. Krahel, assistant professor of accounting at Loyola University of Maryland Sellinger School of Business.

Krahel said while people may think savings accounts are the safe option, they're not considering the risk of what they're missing out on. 

“I think things changed back in 2007. I think once the crash happened, people became so fearful of any type of investment that they [said] 'let me just keep my money safe' and then that psychology becomes something you can take advantage of. [Big banks] just say, ‘we're not going to offer you anything but hey, atleast you won't lose your money like you might if you go to the stock market,’” Krahel said.

Most banks are currently paying customers less than 1 percent interest on their accounts. Part of the reason why is because they can.

“Four banks – Citi, Wells Fargo, Bank of America, and J.P. Morgan and all of their subsidiary banks – control 40 percent of the market. And what that means is they're able to kind of keep rates low for the same reason that airlines can now charge greater fees. It's because when there are fewer players in the market, who are you going to turn to?,” said Krahel.

However, there's now more consumer choice through some non-traditional outlets including apps that automatically buy stocks for you, credit unions, or online banks with better rates. You won't have the same access to ATM's and some other conveniences that come with big banks, but you are putting your money to work.

“Any bank is better than putting your money in a mattress but it's not as much better as it used to be than say the 1990's,” said Krahel.

It is important to have some money in savings, in case of an emergency. GoBankingRates found that 39 percent of Americans have no money saved and more than half has less than $1,000.

When you choose your bank, also keep an eye on their fees. According to Bankrate, overdraft fees are at a record high at around $33. If you’re hit with a fee, experts recommend giving your a bank a call. They’ll typically waive the fee once a year.