In recent years, the phenomenon of declining interest rates on bank deposits has raised doubts among the population regarding whether it is still beneficial to keep money in the bankMany people are witnessing firsthand the trend of interest rates dwindling down to single digits, specifically entering the "1" eraThis has understandably led to unsettling questions—are consumers still able to derive real value from bank savings?

To illustrate the severity of the situation, a recent adjustment to the interest rates took effect on October 18, revealing that a one-year fixed deposit now offers a mere 1.1% interest rateTo put this in context, this means that depositing 100,000 units in the bank yields an annual return of only 1,100 units—a substantial drop from previous rates that resulted in significantly higher interest incomeThe two-year fixed deposit interest was reduced to 1.2%, and the three-year fixed deposit interest has dropped to 1.5%. Even the previously attractive five-year fixed deposits now offer only 1.55% interest

The stark reality is that deposit interest rates have universally entered the "1" era.

If we consider the rates from just two years prior, the presentation appears even bleakerIn September 2022, the rates had already been adjusted, and at that time, the three-month fixed deposit had an interest rate of 1.25%—quite ironically, better than today's two-year ratesAdditionally, the interest for a one-year fixed deposit was standing at 1.65%, which surpasses even the current five-year ratesBack then, rates for two, three, and five-year fixed deposits all exceeded 2%, with two-year interest rates hitting 2.15%, three-year rates at 2.6%, and five-year rates peaking at 2.65%. The contrast between then and now is glaring, illustrating a dramatic decline in returns for depositors.

Examining the changes over the last two years, the interest rate for a one-year deposit fell from 1.65% to 1.1%, resulting in an annual interest reduction from 1,650 units to 1,100 units, or a loss of 550 units in income

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For two-year deposits, the downfall is even starker, with a reduction from 2.15% to 1.2%, leading to a decrease of 950 units in annual interest incomeMoreover, the decline continues with three-year deposits, dropping from 2.6% to just 1.5%, decreasing what should have been a 2,600-unit return to a meager 1,500 units—an unsettling loss of 1,100 unitsWhen observing this alarming trend, many individuals must wonder if keeping money in a bank is still a wise financial decision.

This decline raises the essential question: Is storing money in the bank still profitable? With rates continually decreasing and the expectation of further cuts looming, it prompts a thorough analysis of the practicality of such choicesIn economic terms, one must understand the distinction between sunk costs and opportunity costsSunk costs pertain to past expenses that are irretrievable, while opportunity costs relate to what one opts to forego when choosing one investment over another

A common pitfall is that everyday people often fixate on sunk costs, leading to irrational financial decisions.

Take the example of a stockholder who purchases shares at an initial price of $10, only to see the price fall to $8. The stockholder experiences what is recognized as sunk cost—an emotional burden that can lead to resistance to selling and realizing actual lossesIdeally, one should consider the current price as the new basis and seek alternative investments that outperform the current holdingIf a more lucrative opportunity emerges, the proactive choice would be to reallocate investments rather than remain fixated on previous losses.

The same logic applies to current deposit circumstances: those who choose not to keep their money in the bank should explore alternative optionsWhat could replace the bank? Is the stock market more appealing? Does real estate offer better returns? Are there consumables worth investing in? What about alternative banking products that promise better returns?

One such alternative presented by banks is the dividend-earning insurance product, which requires a payment of 100,000 units annually over five years, accumulating to a total input of 500,000 units

At the end of the 31-year period, the total benefit could reach 1 million units—a scenario that seems enticing at first glance, as it suggests an average annual rate of about 3.3%. However, the catch lies in the necessity of retaining the investment for the entirety of the 31-year duration to achieve that promised doubling of capitalThis lengthy commitment raises concerns—how many individuals can afford to leave their money tied up for three decades? They cannot predict their urgent cash needs or unforeseen emergencies that may arise during the investment period.

As we navigate this unpredictable financial landscape characterized by low deposit rates and potential inflationary environments, it's crucial to consider the context of cashOver the past two years, bank deposit rates have been reduced by as much as 40%, yet even with minimal interest, money retained in a bank remains relatively safe and secure

Fixed deposit terms generally range from one to five years—allowing adequate time for savings without excessive risk, providing liquidity in times of urgent need.

Returning to the broader economic situation, we find ourselves in a deflationary context, where prices are declining, contrasting the previous inflationary periodsVarious economies, including Japan's, have battled deflation for decades, yet China represents a unique case where inflation has transitioned to deflationDeflation signifies a scenario where money holds more value as time progresses, defying the implications of inflation that typically sees asset values surge disproportionately to cash amountsIn the realm of real estate, for instance, during a favorable inflationary period, owners might experience six-fold returns on their initial investments due to skyrocketing property valuesHowever, in contrast, we are witnessing a drop in asset prices, which tarnishes the potential benefits of alternative investments compared to simply keeping cash in a bank.

While there remains an overarching sentiment that banks are offering less for our money, it is essential to appraise the safety and security that comes from maintaining a bank account with even the lowest interest rate