State Bank of India now pays 2.75% a year on money lying in your savings bank account; till last year they were paying 4%a year. If you were to open a fixed deposit with them, you would earn 4.4% a year on which you’ll pay some tax. This is a reality in the low-interest rate regime of today and there isn’t anything you can do to change it.

A bigger worry is that the money lying in your savings bank account is always available for spending. You are not earning much on it, might as well spend.  Seeing all the money readily accessible also gives a false sense of security, almost like you don’t need to hold on to it for your financial future. The truth is that not only do you need the money for your future but also that you need to grow the value of that money, rather than letting it deplete in the bank. I say deplete because, at close to 6% inflation or price rise in the economy, it’s clear that if you let your money sleep off in the bank, it’s real value is falling not growing.

What can you do to change this? Choose smarter investing options.

1. Short term needs

Leave enough money in your bank account to cater for 3-6 months’ worth of expenses. If that too will be tempting and you think you might end up spending it all, then shift anything that you need for more than 2 months into liquid funds. Liquid funds are the lowest risk mutual funds where you can park money, earn a slightly better return than a savings bank account will give you and also withdraw at a day’s notice. This is your alternative for a savings bank account for money that you need to keep aside for 3-6 months.

Then chalk out what you may need, say, for the next 1-3 years. This is also primarily money that you will not like to risk and hence, invest in debt funds. However, pick from the choice in debt funds meant to be invested in for a slightly longer period. Short term income funds are the more accurate choice here. The returns you earn are higher than your bank account with better tax efficiency.

2. The safety of gold

Investing in gold is not new to the Indian household. However, we tend to go overboard. Let’s understand that gold has no real income of its own and that makes this asset undesirable as a long-term investment. At the same time, it can make for a good alternative for a portion of the money that lies in your bank account. Why? Gold price, over a period of 5-7 years has the ability to keep pace with inflation. This means that investing in gold over a reasonable period has the potential to deliver returns equal to inflation in the economy, which is better than leaving the money in your savings bank.

The best way to invest in gold today is through Sovereign Gold Bonds, issued by the Reserve Bank of India and sold through your commercial bank. The bonds are easier to invest in than holding on to physical gold. The face value of the bond or the investment price is linked to the current price of gold and at maturity, you will receive the price at that time. Plus, there is a 2.75% annual interest paid on this bond.

Given that gold prices are market-based and impacted by a lot of external factors, the caveat is to not invest a lot of your low-risk capital, rather keep it to around 10% or so to take advantage of the inflation hedge and the interest earned on top.

Allocate only that portion of the money which you don’t need for a few years to gold investments.

3. Start regular long-term investing

It’s unlikely that all the money in your bank account is what you need for consumption in the next 3-6 months or even the next 1-3 years. There is bound to be a portion which you can keep aside for the distant future, but don’t know where.

First try to ascertain what this amount is, which, you don’t need in the foreseeable future. Then break it up into smaller figures and invest every month in an investment option that can help you create long term wealth. A regular monthly investment in an equity mutual fund will help you utilize those excess funds lying in the bank judiciously towards long term wealth creation.

The important part is arriving at how much you can put aside from that pile of savings now and how much you can add to it every month. Make sure you put adequate thought towards arriving at this figure because for long term investments to deliver the value you must leave them to compound or grow for at least 10-15 years.

Realizing after a year or two that you need this money and pulling it out of the investment will be counterproductive.

There is a lot you can do to allocate your money more efficiently and make it work harder. Taking the first step to understanding your needs now and in the future is paramount if you want to achieve the above. Given that your bank savings account is only eating into the value of your money, it’s definitely worth your time to do the calculation and start investing your money more gainfully.

Make the start of this festive season, a reason for you to be mindful towards your hard-earned money, don’t let it lie where it doesn’t belong.