In the tide of the economy, personal financial management is like a sailing ship, both to catch tailwinds and avoid reefs.
Fixed deposits, as one of the traditional ways to manage money, have always been on our selection list.
But when he walked into the bank and was ready to convert his hard-earned funds into a three-year fixed deposit, the bank staff unexpectedly shook their heads to dissuade them.
What is the secret behind this, and why is a method of depositing money that is ostensibly more beneficial to depositors not being promoted by banks?
1. Why aren't banks keen on your long-term deposits?
Entering the door of the bank, you will be greeted by the soft ticking sound of machines and elegant commercial music, but behind this harmony, there is a subtle tug-of-war about money.
Why are banks, which are considered to be safe havens for funds, hesitate or even decline when you propose to deposit funds into fixed deposits for up to three years?
The mystery is more complex than you might think.
The banking industry is like a financial kingdom, and every deposit is the blood of its operation.
However, long-term fixed deposits are like frozen funds, which to some extent limit the flexibility of banks to re-inject funds.
Under the temptation of high interest rates, depositors have locked in funds, but banks are faced with the compression of deposit and loan spreads, and the meager spread is the lifeblood of banks.
Isn't it better for banks to have more deposits, you may ask? Not really.
On the big chessboard of the economy, banks need more water that can be dispatched in the short term in order to quickly respond to market changes and demand.
And those funds locked by fixed deposits are like heavy shackles for banks, which can neither be invested to make more profits, nor can they be used as immediate rescue to resist market storms.
In this context, the staff of the bank, when promoting the product, will always guide you subtly, maybe it is a one-year or two-year fixed deposit, just to keep the flow of money alive in case of emergency.
Under this subtle guidance, the bank's strategic layout and market sensitivity are hidden.
In this chess game of money, banks and depositors are looking for their own best routes.
2. With a long-term fixed deposit, you may lose more than just interest
In this era of a wide variety of financial products, long-term fixed deposit seems to be a stable and honest choice, which makes people feel reassured.
But when you lock your money in the safe deposit box and rejoice with that certificate of deposit, you may not know that you may actually lose even more.
First of all, let's clear the fog and face a big hole in long-term fixed deposits - the liquidity trap.
Imagine that your funds are frozen for three years, and during those three years, if an urgent or better investment opportunity arises, you can't do anything about it.
The opportunities in the market are like trains passing by at high speed, and your funds are like kidnappers tied to the tracks, watching the opportunities slip away.
This is not only a loss of interest, but also a huge waste of opportunity cost.
Again, let's talk about the monster that many people overlook – inflation.
Over time, the purchasing power of money has been declining, and the interest rate on fixed deposits has often not kept pace with inflation.
You may find that the money you get back after three years can't buy what you could have bought when you saved it.
It's like a race where you put your all your heart into it, and you end up running slower than a turtle, which makes people laugh and cry.
However, the bank won't tell you that.
They will use those seemingly tempting interest numbers to make you feel like you're making a lot of money.
Before you know it, you may end up in the bank's elaborate interest rate maze and can't find an exit.
Long-term fixed deposit has its advantages, but its disadvantages and risks should not be ignored.
Now, let's break out of the equation and stop simply maximizing interest.
3. The Time Trap under Inflation: Today's Deposits, Future Purchasing Power
In the shadow of inflation, time seems to be a cunning magician, easily juggling your savings and purchasing power.
When you put your money in the bank and think you're building up your future wealth, you may actually be stuck in an invisible time trap.
Today's deposits, due to the cannibalization of inflation, are quietly slipping away like grains of sand in an hourglass, silent but persistent.
Let's peel back and see how inflation is silently eroding your assets.
Let's say the inflation rate is 3% per annum and your long-term fixed deposit rate is only 2.5%.
This seemingly small 0.5% difference is actually quietly adding negative value to your bankroll.
Three years later, when you withdraw your deposit, that money is no longer the same money.
Their purchasing power is ruthlessly eroded by inflation, like fruits that have been planted so hard that they are gnawed by insects at harvest season.
In this story, the bank plays a modest role and seems to be providing a safe haven.
However, they are actually in a turbulent financial ocean, giving you a boat that seems sturdy, but is actually not enough to withstand the storm of inflation.
A long-term CDs may be a temporary safe haven, but it's not a luxury cruise ship on the road to wealth growth
Now, the question arises: if long-term fixed deposits are no longer safe and reliable, then how should we protect our purchasing power from the erosion of time and inflation?
Fourth, three-year fixed deposit vs annual renewal: the game of investment opportunities
On the stage of investment, the three-year fixed deposit and the annual renewal are like two completely different chess players, one is steady and calm, and the other is flexible.
Players who have been on a three-year basis sit like a clock and sit firmly on the throne for three years, while those who continue to survive every year are watching the situation every year and preparing to mobilize their chips at any time.
In this round of the game, whether each step of the investment is good or not determines the fate of the future assets.
A three-year fixed deposit is like a general's "sticking" tactic, which seems to be safe, but in fact it is risky.
This strategy ignores the unpredictable "tricks" of the investment world – the ups and downs of the market.
Once this decision is made, the money is like being fixed in one position and cannot beat with the pulse of the market.
Inflation, the silent rival, erodes the real value of deposits every year, so that fixed depositors often realize that they are already behind at the end of the game.
In contrast, resurviving from year to year provides a more flexible strategy.
Every year, investors have the opportunity to revisit the board and adjust their layout based on the latest market intelligence.
This approach allows investors to have the opportunity to take advantage of the opportunity at every inflection point in the market, or to retreat in time, rather than passively waiting for time to passively pass.
Whether to choose to make a final decision every three years, or to ring the alarm bell of investment every year, behind this is each investor's different understanding and choice of risks and opportunities.
And in between, there is a hidden option: investment strategies that are flexible with inflation and have a pulse on the pulse of the market.
These strategies not only protect us from inflation, but also find profitable opportunities in the volatility of the market.
epilogue
Through the turbulent waters of inflation, we have seen the delicate relationship between deposits and purchasing power, exploring the delicate balance between fixed deposits and flexible investments.
In this game of wealth preservation and appreciation, time is no longer a simple pass, but a dimension full of opportunities and challenges.
We understand that locking up money in a low-interest fixed deposit account for a long time can unwittingly slip away our purchasing power, and that resuming money over the years gives us the opportunity to re-evaluate and adjust our strategy to adapt to the changing economic environment.
In the face of inflation, we should not sit idly by, but actively look for and use ways to combat inflation and seize market opportunities.