What are the costs of keeping money in a bank account?

In reality, you will have less over time. Here are the three main costs that everyone faces by "docking" cash in a bank account. ⚓️

• Bank fees. Bank charges you various direct fees to keep your account up and running. With a few bucks a month that’s often around 60–120 CHF in fees per year.
• Inflation. Inflation worsens your buying power over time. This means that each year you can buy a bit less with the same amount of money.  
• Missed opportunities. Opportunity costs refer to all the things you might miss because your savings are parked in a bank account.

Let’s have a closer look at how inflation and missed opportunities impact your savings.

How does inflation affect my money?

Inflation affects money in all forms – regardless if you have it on your account, in cash or invested in something amazing. The current inflation rate in Switzerland is 0.8 %. Roughly speaking, this means that each year you can buy 0.8% less stuff with the same amount of money.

At the first glance, this might seem insignificant. The impact of inflation becomes visible as the years roll by. The rate might also fluctuate: 0.8% are relatively low, but it can easily go up to 2-3 % or even more. 

Here is an example

• Now

Inflation rate 0.8 %
Cash in a bank account 25'000 CHF

• After 10 years

Buying power 23’070 CHF
Lost buying power 1930 CHF

How much does a missed opportunity cost?

Short answer: it depends. A missed opportunity is the most subjective and abstract cost effect of the three. It's an umbrella term for all kinds of unrealized positive consequences.

Missed joy

Missed joy refers to the "ifs" and "buts" of passing on things like travelling to Bali or buying a new laptop instead of letting the cash rest untouched.

This lost opportunity cost isn't the most important; you might be intentionally postponing a bigger purchase for later. The rule of thumb still applies – the longer you wait, the less buying power you have over time. 

Missed returns

Missed returns are the benefits of investing that you might have experienced, had you "put your money to work".

What it means in practice depends on how much risk you can and should take. 

The options are, for example, long-term passive investing in "a bit of everything" (that's what Selma can help you with), starting or funding a business, buying specific company shares, giving out a loan, investing in a property or experimenting with trends like cryptocurrency.

How much can I lose by not investing?

Depending on what you invest in and for how long, the answer varies a lot, but let's make a simple example. The Swiss stock market SMI made 6.16% on average over the last 25 years. 

For the sake of simplicity, and to be a bit pessimistic, here's an example with a 5% yearly return.

• Now

Inflation rate 0.8 %
Cash on a bank account 25'000 CHF

Imagined inflation adjusted return
(with the inflation effect deducted)  
+5% / year

• After 10 years

You would have in total 40,722 CHF
Your missed return cost 15’722 CHF