Savings Accounts Are Legal Robberies.

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While investments such as stocks, crypto, bonds, precious metals, or even just dunking money into savings, are heralded as good investments, the reality is… they are not. Stocks take significantly more money than the average person has available to return a realized, worthwhile profit. Crypto is severely unpredictable and volatile, thus providing unstable returns and super high risk. Bonds are stable, but they take eternity to mature and they are severely illiquid. Metals, as in gold or silver (and others), are nice to have around in a safe, and cool to show off to friends, but they are also not very liquid. In a serious bind, you can’t give your doctor a gold bar to pay for your surgery. Last but not least, hefty savings accounts, the ever-praised signal of wealth, are actually really not a signal of wealth at all. While it is true a greater amount in your savings account proves smart budgeting strategies and can certainly be the start of a good investment strategy… it is also indicative of legal robbery.

Robbery? Really? How?!

The returns “gifted” to smart people who save money in a bank, are actually not competitive returns at all. This can be proven easily by a simple look at any other investment medium out there in the economy… real estate, tax liens, luxury goods, small businesses, and even the ones I mentioned as “risky” or “illiquid”, like stocks, cryptos, bonds, and precious metals. Prior to recent years, the standard “competitive” rates of return on a traditional savings account landed around 0.1% - 0.5% (and these were considered great back in hay-day).

But wait! Super smart person here 🙋🏻‍♂️ You are mistaken my friend! Your article is trash! High-Yield Savings accounts of today can go up to 5% APY (Annual Percentage Yield)! Ha, I got you!

Yeah, right. 5%? Annually?? Let’s pencil that up real quick. If you were to deposit $1,000 into a high-yield savings account, no matter how often they paid out interest in said account, you would only get an absolute maximum of $50 a year. And that is assuming you keep every single penny of that $1,000 in your account for the entire duration of the year, and I mean literally midnight of January 1st to 11:59 pm of December 31st.

And remember, this is all assuming you find an account that offers 5% in interest. Most accounts are still less than this.

Me again 🙋🏻‍♂️ But wait! Ha! That’s easy! Just deposit MORE money into savings!

Sure, we can do that. But how much money are you talking? How much money do you have right now that you would be able to put into savings?

Let’s take the average person. Let’s be extra nice for the sake of argument and say that this average person has $10,000 he or she can put into savings and can lock up for an entire year without ever needing to do anything whatsoever with that money. Like he or she miraculously has zero medical bills, zero emergencies, and zero purchases they plan on using said money for. That’s still only $500 total interest income. And you can’t just put $1m in there either. Most banks cap the amount that you can get interest on, especially for high-yield accounts (typically capped at $10k-$100k, depending on the bank).

Let’s imagine this $10k scenario for a second. I hope you all have pretty darn flexible imaginations.

Meet Johnny B. Stupide

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Say this person with $10k is crying his eyes out speaking with you. We’ll call him Johnny B. Stupide. John for short. Say John had placed his life savings, $10k into a 5% savings account for an entire year. He lives in an apartment that costs him $1,000/month, and has always dreamed of owning his own house. He misses out on buying three beautiful houses that were amazing deals because he swore “never to take that money out of savings”. Two of those houses were rentals, and they had long-term tenants making $1,750/month for the first and $2,000/month for the second. All three houses qualified for a great seller finance program and would have only required $5,000 down each. The payments were $1,000 on the first rental and $1,250 on the second. The last house, a beautiful craftsman home that John absolutely loved, required nothing down because this was going to be his primary residence (think USDA 0% down program) and only cost $750/month on the mortgage (let’s say it needed a little TLC). John sure is handy, just not very smart, so he could have easily fixed it up in no time and had a beautiful home to live in.

Let’s pencil both of these scenarios out a bit.

The first is super simple, probably matching the super simpleton that John is… by leaving $10k in savings all year, John got a return of $500. Wow! Free money right! NOPE!

Here is what John missed out on by not buying those houses and investing his savings intelligently. First, he could have spent all $10k on the first two houses. Remember, this is extra money John doesn’t necessarily need. So he still has enough for rent. He is now making $1,750 + $2,000/month in gross rentals. Now of course, we need to subtract the respective mortgages of $1,000 and $1,250 from those, arriving at $750 and $750 for both houses. John calculated and found that all other costs, including insurance and other “holding” costs for the rentals totaled only $250/month for both rentals, since both the tenants paid for the remaining costs like utilities and mowing. So basically, he would have been making $1,250/month net cash flow.

Now he is on fire. He wants that third house! As we said earlier, it qualifies for the zero down program because it is in a rural area. John’s credit is pretty good and his current job income makes plenty to afford the $750 a month mortgage payment. So he closes on that house and moves in with his family. Within a month, the entire place is fixed up, which has already increased the value of his house and thus his equity by a principle called Forced Appreciation.

Now, let’s recap. In this second scenario, John took out the $10k from savings and put it into these two houses. We already figured out he would have been making $1,250 net. He then bought the third house right after and now we need to subtract the mortgage of that house from his net income. So now we’re talking $500/month true net, after all three houses are accounted for. We can deduct another $250/month in insurance, utilities, and other holding costs for the third house. Just to be realistic.

So John is now making $250/month net cash flow after all expenses and debt are subtracted.

In two months, he has $500 saved up. That is the equivalent of an entire year of leaving his $10k in savings, which the poor chap unfortunately did. Remember, he chose the stupid path of “safe” savings. It’s about to get unsafe real fast, so keep reading.

Not only does he have $500 in two months in the smarter scenario, but he also has THREE houses!! His mindset changed. He’s impressed the daylights out of his girlfriend, who is now eager to get engaged and marries him that very year. He is excelling at his job because he knows he doesn’t necessarily need to suck up anymore. Plus the extra confidence boost of now being an “investor” was a real tonic to John’s natural depression and he landed a big promotion. Now he’s excelling income-wise, mood-wise, and relationship-wise. He is ready to invest in the next couple of properties and eventually quit his job altogether.

Oh wait, but he didn’t do that. Maybe there’s a multiverse where he did, if such a thing existed, but unfortunately he is stuck in lame John universe.

In the second, smarter scenario, we included John’s mortgage payment and he STILL made $250/month after all debts and expenses.

But in the first, dumber scenario, we never took into account John’s rent. So let’s say he loses his job. Oops. His depression worsened (savings don’t make you happy) and he just let things slide at work… a little too far. Now he doesn’t have an income. He also doesn’t have rental income because he never bought those houses. So he dips into his savings early in the year. He uses the $10k to pay his rent, which is $1,000/month. He is out of money, and I mean dirt poor and utterly broke by October. He is out his $10k, he never made his $500 interest because he took the money out too soon and now he has no money to pay rent.

Bummer!

Now John doesn’t have a home, doesn’t have his precious savings, doesn’t have a job, and doesn’t even have a girlfriend because she left Mr. Broke and Depressed and bought those houses he left behind. Mega bummer!

Now, onto How Banks Truly Rob You

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And the funny thing is we never even got to how banks are robbing us.

We say that the new high-yield savings accounts have “amazing” returns. Now, let me be very clear here, I’m NOT saying you should never ever put your money into savings. If you have extra, put it there. It’s also a good idea to have an emergency fund, money that you don’t want or need for investing. I mean, you have to store your cash somewhere. 5% is better than 0%. Sure. And please, don’t freaking put it in a bag underground. For real. While in savings, just simply don’t anticipate locking it up there for an entire year just to make that lousy 5% or 3% or 2.5% interest rate or whatever joke they’re offering you. That is the true meaning of this article. As we saw in the dummy John scenario, that is not a wise investment idea.

Here’s what you should do:

Invest your cash LIKE the banks. Not IN the banks.

Yep! What the banks rob you of is not the cash in your account. It’s the POTENTIAL of that cash.

Banks do not suck up your money and run for the Cayman Islands. No. That’s not what I mean by robbery. They rob you of your money’s true potential. They anticipate that you will be a dumb John and just let your money sit there and grow for eternity! Like a tree! But how long do trees take to grow? Certainly longer than you’ll be alive.

Here’s how the banks are robbing you:

1. Bank promises you 0.1%, 3%, or at max 5% (we’ve personally never seen higher than this),

2. Yay! You let your money sit and get a return of 5% max a year. Better not have an emergency! Better not take any out!!

3. The bank takes your money and invests it.

Okay now we can move on. WAIT. WHAT?

Yep! You heard me! The bank invests YOUR hard earned money in what the real smart people already invested in. In what YOU should have invested in. Real Estate. Private Equity. Venture Capital. Lending. Hedge Funds. Mutual Funds. Index Funds. REITs. Small Businesses. You name it.

The banks for sure do NOT deposit their own money into their lousy 5% “high-yield” jokes. No sir. They know better. They invest it where your money should have been all along. Into a real investment medium.

Now we’re talking! On your measly 5%, which remember used to be 0.1% on the high end back in the day, the bank actually makes upwards of 10%, 15%, even 20% or greater on top of it. Yep. They are quite literally robbing you of knowledge, of information… of opportunity.

What should you do? I will reiterate. If you have cash, put it into savings to store it. BUT, know that it’s only until you can find a greater use for it. If you come across the deals like Johnny B. did, then you’ll know what to do! Hopefully this article has helped you get there. Read about what type of investments to invest in, how to invest, where, when, and why in other articles coming soon.

Thanks for reading! And you’re welcome for the warning!