Monday, April 19, 2010

Interesting Interest

Boyo and I had a rather interesting conversation just before I started cooking dinner (which is currently cooking...curried kumara soup followed by rice pudding for this Meatless Monday, and because Boyo has had a tooth out so needs something non-chewable, plus a bit of leftover fish from yesterday so it doesn't go to waste. I am soooo hungry just telling you about it all!).

So, back to our conversation. We had a letter from our bank, trying to talk us into an interest bearing savings account. This all sounded pretty good to start with. I mean, making your money work for you to get more money is sound stewardship, so interest on your savings is a good idea. However, then Boyo pointed out the interest rate. It ranges from 1.75% to 2.5% per annum. Now, I don't know about you, but to me that doesn't seem like much at all. In fact, it makes me wonder if it is worth putting money into the bank, if my sole reason to do it is for the interest. I guess it all boils down to purpose, use, and amount.

If I want to feel my money is 'safe' then a bank seems like a reasonably good idea, although not completely fool-proof by any means (as the recession bank collapses have shown us). If I want it accessible, but somewhere I am not tempted to use it to buy junk food, wool, or books, again the bank seems like a good idea. And I'm thinking that interest on $5,000 would seem a lot more worthwhile than interest on say $50. Yet the larger amount would probably still only receive a slightly higher interest rate than the $50 at the end of the day.

I found myself wondering what would happen if instead of putting money into the bank to earn 2.5% interest, I used that money to do other things. What if I 'invested' it in our future in some other way? So here is my hypothetical situation:

Spend $40 on a fruit tree and some fertilizer for said we don't have our own property this really is just conjecture for the sake of it at this stage!

For the first 5 years, we assume it doesn't produce much of anything.
For the following 5 years, we assume it produces us 25kg of fruit each year, on average.
If the fruit is worth say $5/kg in the market, then we've saved ourselves $625 by growing our own.

Now, like I said, purely hypothetical. You might find you'd spend a little on fertilizer, but then again you might just make use of free compost for your fruit tree. Some fruit trees cost more than $40, some cost less...depends on whether it is grafted, heirloom, from a nursery or garden centre. Many trees on today's market seem to start fruiting from 3-5yrs, but that would be a low yield so I just ignored that and started at 5yrs. We totally guessed 25kg, based on what my parent's apple trees seem to do...but we have not in any way weighed their actual yield. And of course, we are assuming that you have a property that you are not going to up and leave in a couple of years time.

SO, all fruit-related conjecture aside, if I were to put that $40 into my bank's interest bearing savings account, and get 2.5% interest, Boyo reckons I would make about $50 in interest over a 10 year period.

Interesting interest.

Thinking things through is a good idea. This is one instance where putting a bit of money in the bank is not necessarily the best long term investment. $90 in 10 years time, versus $665. While it might not be actual money in the hand, it is still income and still an investment. It's all about how you view it. And while we may not have a property in which to plant a fruit tree ourselves at present anyway, this is an approach I can apply to other areas of our lives. Small appliances, for instance. Will they save me money, or are they just a commodity? If they save me money on a weekly basis, they might be a better 'investment' than savings in the bank. Maybe. Worth considering at any rate.

Don't get me wrong. I believe in having cash reserves, and I believe in the use of banks. Boyo and I have an emergency fund and it certainly helps my overall stress levels, knowing it is there if we ever need it. I believe in paying off debt and I believe in routine saving. We are hoping to save money over the next few years towards a house deposit, so we will be making use of the bank! I'm just reminding myself not to take things at surface value or blindly follow the advice o the 'experts' around me as they usually have their own interests at heart (no pun intended!). I need to determine for myself what is a good investment, based on my own lifestyle and values. Sometimes that might be putting money in the bank, other times it might be investing in something else for our future.


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