Why depositing money in your bank is nonsense

When depositing money at the bank you are promised a rate of interest. In the UK this is currently in the order of 1%-2%. You then think that depositing money in the bank is a form of asset and that each year you will increase the value of your money by let’s say 2%.

Now take into account taxes on the profit you make, this reduces the net value you originally thought you made. Then consider inflation. This is currently in the order of 2%. Inflation erodes the nominal value of the money your originally deposited in the bank, so in real terms the net value of the amount you originally deposited in the bank is likely to be NEGATIVE.

So even though you may think lending your money to the bank is an asset the reality is the opposite.

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