Why young investors are moving away from savings accounts

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Savings accounts are very popular with Indians. Savings accounts give security, access, and low interest on the deposit. But for young investors, the interest is generally too low to beat inflation. Money remaining idle in a savings account can be safe, but its purchasing power will reduce as time goes by. This disparity between safety and real growth is driving young people elsewhere.

Attraction for higher returns

One of the largest reasons why young investors avoid savings accounts is the attraction for higher returns. Investment options such as mutual funds, digital fixed deposits, and even interest plans on fintech wallets have significantly higher returns compared to normal savings accounts. With inflation rates remaining well above average interest rates of banks, young investors seek opportunities to maintain or even increase their wealth.

Convenience and technology are at the forefront

Technology-first financial products are also appealing to younger generations due to the fact that they're as much about efficiency and convenience as they are. Mobile apps, digital dashboards, and robo-investing websites offer convenience in seeing, investing, and holding money anywhere and at any moment. The old savings account, tied often by virtue of having to go to the branch and with only the most rudimentary of online capabilities, just isn't as interesting or flexible.

The function of financial savvy

Financial literacy is as important. New-generation investors today are more knowledgeable about different instruments, risk adjusted return, and means of earning money. They understand that savings accounts are safe but don't value long-term appreciation. A majority of them now prefer to invest their money in a safety versus money-making potential portfolio.

Though they stray from the traditional savings account, young investors do not give up safety entirely. They hold a small amount of cash in a savings account as a buffer and invest the rest in alternatives that perform better. This gives them the advantages of liquidity, sound night's sleep, and returns—satisfying short-term needs as well as long-term goals.

FAQs

Q: Why aren't savings accounts as popular among young investors?

Low interest rates that fall short of even maintaining pace with inflation render them less desirable for building wealth.

Q: What else are young investors turning to in their place?

Mutual funds, online FDs, and fintech-enabled savings or investment apps are the new rage.

Q: Is savings account included in a financial plan?

Yes, having a small emergency fund in a savings account is still recommended for liquidity and safety.