Is it still worth investing in savings? Understand

In recent years, savings accounts have been one of the most traditional investments in Brazil. Many Brazilians rely on savings accounts as a safe way to save money and earn an income. However, with economic changes and the availability of other investment options, the question remains: is it still worth investing in savings? 

How Savings Work

Savings accounts work quite simply. When you deposit your money in a savings account, it earns interest based on a specific formula. Until 2012, the return on savings was 0.5% per month plus the Referential Rate (TR). After that date, the formula changed: when the Selic rate is below 8.5% per year, savings yield 70% of the Selic plus the TR. If the Selic rate is above 8.5%, savings return 0.5% per month plus the TR.

Advantages of Savings

Security

One of the greatest advantages of savings is its security. It is guaranteed by the Credit Guarantee Fund (FGC) up to a limit of R$ 250,000 per CPF and per financial institution. This means that even if the bank fails, your money will be protected up to this amount.

Liquidity

Another advantage is immediate liquidity. You can withdraw your money at any time without loss of profitability. This is ideal for those who need an emergency fund or prefer to keep money available for unforeseen circumstances.

Tax exemption

Savings accounts are exempt from income tax for individuals. Unlike other investments, you don't have to worry about the lion biting into your income.

Disadvantages of Savings

Low profitability

The main disadvantage of savings accounts is their low profitability. In periods of low Selic, the return on savings may be lower than inflation, which means that your money loses purchasing power over time. For example, if the Selic rate is 5% per year, savings will only yield 3.5% per year (70% of the Selic rate), plus the TR, which is often zero. If inflation is higher than this, your money is devaluing.

Lack of Diversification

Investing only in savings can be a strategic mistake. Diversification is one of the basic rules of smart investing. By putting all your money in savings, you are missing out on the opportunity to increase your assets more significantly with other investment options.

Comparison with Other Investments

Treasury Direct

Treasury Direct is a safe alternative with a higher return than savings. Public bonds such as the Selic Treasury follow the Selic rate and therefore yield more than savings in any interest rate scenario. In addition, there are fixed-rate and inflation-linked securities that can protect your money against devaluation.

CDBs

Bank Certificates of Deposit (CDBs) are another option. They are also guaranteed by the FGC and can offer higher yields than savings accounts, especially CDBs from smaller banks which usually pay percentages of the CDI (Interbank Deposit Certificate) above 100%. Some CDBs have daily liquidity, allowing you to withdraw your money at any time.

Investment Funds

Investment funds allow diversification and access to professional management. There are fixed income, equity, multimarket and real estate funds. They charge management fees, but can offer higher returns than savings accounts, depending on the strategy adopted.

Stocks and Real Estate Funds

For those with a bolder profile, investing in shares and real estate funds can be an excellent way to increase your assets over the long term. These investments are more volatile, but have historically provided higher returns than savings and inflation.

Is It Still Worth Investing in Savings?

The answer depends on your investor profile and your financial goals. If you are looking for security, liquidity and simplicity, and don't mind low returns, savings may be an option. It is ideal for those who are just starting to invest or who need an emergency fund.

However, if your goal is to maximize the return on your money and protect your purchasing power against inflation, exploring other investment options is essential. Treasury Direct, CDBs, investment funds and even shares and real estate funds can offer better opportunities to grow your assets.

See also: Investing in Shares: 15 Tips for Beginners

June 14th, 2024