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How Banks Make Your Money Disappear

This is the second post in our series "The Money Revolution". If you haven't read the first one, we recommend you start here.

How Banks Make Your Money Disappear

You know how the cycle goes. You work, get paid every two weeks, take care of bills and necessities, and leave some money in your checking account. You have all sorts of financial goals, from your child’s future college tuition to that new guitar you’ve been dreaming about, and rely on the interest from your checking account to help you accumulate wealth.

Well, we hate to break it to you, but the average checking account offers a 0.04% annual percentage yield (APY), and that just isn’t going to cut it. In fact, you’re actually losing money by keeping it stowed in that account.

How is that possible? How do banks magically make your money disappear?

Let’s take a closer look and explore how this traditional financial system impacts you.

Inflation – Money’s Vanishing Act

In a typical year, the prices of goods and services increase, and this discrepancy in prices becomes more evident over a longer period of time. For instance, a loaf of bread today costs on average $2.12, while in 2000 it was $1.26.

This has become a natural part of modern society, and we all understand it on some level; it’s the reason why your grandparents brag it was only a nickel to go see a movie when they were young.

This increase in prices is called inflation, and in modern day financial systems, it is inextricably linked to the value of currency. When prices rise, the power of that particular currency decreases.

In other words, $100 today can buy you a whole lot less than it could thirty years ago.

So, inflation by design erodes the value of every dollar over time.

The Federal Reserve, which is the central banking body in the United States, aims to maintain inflation at about 2% a year. Within this system, some inflation helps to stimulate the economy by encouraging spending and investing.

However, sometimes inflation can run wild and far exceed 2%. For instance, from December 2020 to November 2021, the inflation rate was 6.8%, the highest in the U.S. in nearly 40 years.

So what does this mean for your savings? Well, if you had kept your money under your pillow from December 2020 to November 2021, it would have lost 6.8% in buying power. That is, your $100 would only buy you $93.20 worth of goods the year before.

But what about if you had deposited that $100 into your bank’s 0.04% APY checking account? Surely you would be much better off, right?

Well…your $100 would be $93.24 relative to the prior year. Ouch.

It’s All in the Interest Rate

Essentially, if the interest rate offered by your checking account is less than the inflation rate, your money is vanishing before your eyes. If your money doesn’t increase at at least the same rate that prices of goods and services do, you’ll continually lose buying power and, therefore, wealth.

Fortunately, inflation in the United States is rarely this high, but rather typically around 2%. So, a checking account would have to offer you above 2% interest to be worth your while over the long term.

Does your bank’s checking account have more than a 2% APY?

Likely not. These days, you’d be lucky to find 1%. When you do the math, it looks more like the opposite of saving to us.

Take Back Your Financial Future

What does this all mean for you? As inflation and a too-low APY checking account erode your wealth, you’ll have more ground to cover to pay for your child’s tuition, buy that guitar, or cross off any of your other financial goals. And, as this process continues, the distance between will continue to increase.

At a bank, you’re always playing catch-up.

At Pebble, we help you take control of your financial future with a financial system designed to grow your wealth.

It’s time for your money to build up and bring you closer to your goals.

Now that we’ve gone down the APY rabbit hole and come out the other side, it’s time to talk about fees. With us, there’s not much to say, because we don’t have any. But with banks, that’s a whole different story. Let’s take a closer look at how they’re charging you left and right.

Join The Money Revolution.

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Join The Money Revolution.

Let's build a more rewarding future together.

It's time to start earning.
Check your texts for a link to get started.
Oops! Something went wrong while submitting the form.