How can inflation affect your money?
If you have a PHP 50 bill, you will know that years ago, this could have bought you a decent meal with chicken and rice at a certain fast-food restaurant. Now, this same amount could just afford you sides like one order of regular fries.
This is the effect of inflation. Inflation is the general increase in the prices of goods and services over time. In other words, inflation makes you spend more on the same item today than you did a few years ago because prices generally increase. For example, the same cup of your favorite coffee would cost you a lot more in year 2023 than back in 2017.
Inflation is troubling if your salary or income stays the same throughout the years. This would force you to live frugally, lessen your expenses, and be more wary of what you’re buying.
If your money is not invested or placed in any interest-earning financial assets, then you’re in a way “losing money” over time. Your savings can buy less and less of the same amount of goods because of inflation.
Meanwhile, if you have investments and the inflation rate is higher than the interest rate you are earning from these, you are also in effect losing money because a high inflation rate has adverse effects on asset prices.
Here’s a quick analogy. If you keep your money under your pillow or your bed, then its value depreciates due to inflation. If you put it in a savings or time deposit account, it can grow a bit by earning some interest. But if you invest your money in financial instruments like Unit Investment Trust Funds (UITF), then the magic of compound interest happens, which means that you will see your money grow exponentially.
Compound interest is the interest on money calculated on both the initial principal and the accumulated interest from previous periods. Simply put, you’re earning “interest on interest,” which will make your money grow faster than simple interest. Investing in this type of product will help give you better protection against inflation.
To sum it up, climbing inflation rate reduces the value of your money over time, so it is important to be mindful of how you manage and grow your money amid a rising inflation environment.
Here’s how you can protect yourself from inflation:
- Think long-term. Instead of keeping your money idle at home, consider placing them in compound-interest earning financial assets like Unit-Investment Trust Funds or UITFs. UITF is a collective investment scheme where money is pooled from various investors and invested collectively by professional fund managers in different high-yielding financial instruments. They do not earn through a fixed-interest rate but grow in value depending on the assets it carries and the market.
However, just like any type of investment, UITFs carry a risk of going down in value as the market moves so you just have to be ready to take in the punches from a volatile market environment. But since you are investing for the long term, don’t rush in taking out your money. Just observe the market, learn how your fund performs, see how you can better strategize on your investment.
Metrobank offers a wide range of UITF products that can match your investment objective, risk profile, and preferred time horizon. To get full details on these offers, check out https://www.metrobank.com.ph/articles/uitf-products.
- You can also consider keeping your money in time deposits. Like a savings account, a time deposit earns you a fixed interest on your funds, which is typically higher than the interest rate of a regular savings account. However, the money in a time deposit must be held for the fixed-term to receive the interest in full. Typically, the longer your term is, the higher the interest rate you’ll receive.
With Time Deposit, you’ll need to wait for the maturity date to withdraw your money – otherwise, it will incur fees. No need to worry though, as you can choose how long you want to keep your money in Time Deposit products. So choose the terms that best suits you.
A good example for this is Metrobank’s Online Time Deposit product which allows you to earn an interest rate of up to 4.5% per annum* on your money.
Investing your money wisely is easy with this offer, as you can open an OTD with just a PHP10,000 minimum placement and enjoy flexible terms from 1 month to 1 year.
For Metrobank clients, ensure that you have a Metrobank Online account so you can open an Online Time Deposit. From there, starting your OTD journey can be done in just a few easy steps:
- Open your Metrobank Online account.
- Click the ‘Open Time Deposit’ icon in your Dashboard.
- Fill out the needed details for your OTD placement, and click ‘Submit’ to proceed with your transaction.
Inflation isn’t something to be scared of. With tools and services to help grow your funds, you can easily protect your hard-earned money, and ensure that it works harder for you.
*Depending on chosen terms and amount of investment.
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Read: Three things to consider before borrowing money, according to Metrobank