Economic Theory – Risk-Free Savings Accounts Are Money-Losers – Not Only Does Old-Style “Fiscal Prudence” Hurt The Economy, It’s Not Even Economically Rational – 22 April 2012

Have your money in a risk-free savings account? Then you’re an idiot.

Sorry to be blunt about this, but it needed to be said. During the recent crisis, the average interest in risk-free savings accounts is below the rate of inflation (which, by the way, is not very high). If you want better savings account interest, you have to put your money into risky investments (you know, like people did before 2007 with subprime mortgage investments…that sort of thing). The risk-free savings accounts are money-losers.

On top of that, money stowed away in savings, as Keynes pointed out decades ago, is in any case not doing the economy any favours, because it’s not being spent supporting businesses that provide consumer products. So not only are you losing money over time, but you’re also hurting the economy that generates your present income (if you’re lucky enough to still have any).

Despite all this, some people out there will squirrel their money away in a risk-free savings account, just because they were told that is what responsible people do.

Good luck with that, folks.

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