Savings Account Vs. Gold: Which One Should You Choose?

The Spotlight

5 minutes read

Jan 31, 2023

a piggy bank with gold euro coins falling in it and a PAMP Suisse gold bar

With interest rates rising, you should make sure you're getting the most out of your money. Check out our savings account guide for some practical tips.

2022 was a turbulent year, dominated by geopolitical tensions and global economic turmoil. Moreover, it was all about inflation, falling purchasing power, and rising energy costs.

What can we do to protect our savings in these uncertain times? Is it still safe to trust banks? Is there an alternative to traditional savings accounts?

Let’s take a look at the most accessible and reliable saving solutions.💰

What is a savings account, and how does it work?

a man using a calculator to calculate his savings in a savings account

Unlike current accounts, where you keep your money for day-to-day expenses, savings accounts are long-term, interest-bearing deposit accounts held at a bank or other financial institution.

One of the biggest benefits of a savings account is that you can earn interest on money held in your savings account. Depending on the type of account you have, you should be able to access your money relatively easily.

However, you should know that interest rates on savings accounts rarely exceed 5% - even if they can sometimes be revalued. In some countries, they never exceed a tiny 1%, which is not really helpful when taking inflation into account…

If you live in the U.K., you can get a regular savings account with a rate of 7%, but you will need to open a First Direct 1st current account to qualify for one.

Savings accounts: a popular choice for savers

Savings accounts are one of the most popular saving solutions in Europe. For example, more than 65% of French households keep their savings in the so-called “Livret A” accounts. But what makes it so popular?

Well, first of all, savings accounts are reassuring: you can see how much money you have, it's available almost immediately, and it's safe.

Another positive thing about savings accounts is their accessibility. In the U.K., most banks require a minimum deposit to open a savings account, usually between £50 and £1,000. But many accounts can be opened with just £1.

💡What are the most popular savings accounts in the U.K.?

Currently, these are the top savings account interest rates:

  • Regular savings account: 7%
  • Sharia savings account: 4.45%
  • One-year fixed-term bond: 4.26%
  • Notice savings account: 3.60%
  • Easy access savings account: 2.86%

Savings accounts and inflation: a good deal?

a cartoon man catching a cart full of products with a white arrow and green balloon rising up

Doubts, worries, insecurity: these are the words that describe how most of us have been feeling over the past few years.

Surely, the symbolic 10% inflation mark in Europe, which was passed in 2022, was enough to shake things up.

So, what do you do when prices go up? Set aside some money, just in case.

Money and purchasing power

Are £10 worth the same in 2023 as they were in 2003? Certainly not.

With the cost of living mostly going up over the past 20 years, your £10 can probably buy you fewer things today.

💡The value of 2003 British pounds today

From 2003 to today, the inflation rate in the U.K. was around 65%, which is a total increase of £7. This means that the purchasing power of £10 in 2003 is equivalent to £17 today.

So, to get, let’s say, a wine stopper that would have cost you £10 in 2003, you'll have to spend £17 today.

And we can all agree that a £17 wine stopper is just too expensive.

What does this mean, exactly?

Imagine putting £1,500 into a savings account in 2003 and not touching it for 20 years. Is the amount going to be the same in 2023? Apparently, not. With consumer prices going up, you would lose a chunk of your savings.

It’s simple math.🤓

Inflation rate vs. interest rate

To avoid losing money, your savings account interest rate should match inflation. But does it really work like that?

The good news is that interest rates are changing to reflect economic reality. For example, France's Livret A savings account has risen to 2% interest - its highest rate in 10 years - and is expected to hit 3% in February 2023. The Swiss savings account interest rate is lower, at 0.5%.

How to protect your savings?

a cartoon man with a suitcase looking at charts

Keeping your savings safe is all about planning, balance, and calculation.

Diversify your savings

It's the same rule for investments and savings: don't put all your eggs in one basket! The goal is always the same: don't take too much risk.

💡Read our SPOTLIGHT to learn the difference between saving and investing.

Even though savings accounts are one of the most popular choices, other options can be just as good... or sometimes even better.🙂 For example, real estate or gold and precious metals.

Start saving in gold

Take a cue from central banks.

To protect themselves from inflation, central banks buy gold. The central bank demand for gold exploded in 2022, reaching its highest level in 55 years!

Due to its scarcity, gold has intrinsic value. That means gold won't lose value over time, and maybe even appreciate, unlike money you keep in your savings account.

Does it pay to invest in gold?

The gold price usually goes up in times of crisis

As with any other asset, the price of gold fluctuates based on certain market conditions, but it tends to appreciate in the long run. That’s why governments and central banks buy gold to protect themselves in times of crisis and inflation.

For example, when the war in Ukraine broke out in early 2022, gold reached an all-time high, rising to $2,070 an ounce.

💡Read our SPOTLIGHT to learn about the factors driving the gold price.

The price of gold tends to rise over the long run

As we’ve already mentioned, savings accounts rarely pay more than 5%. The most common interest rates are between 0.5% and 3% per year, while the price of gold has been steadily rising for 20 years, reaching impressive peaks in times of crisis.

Here’s an example:

If you put £500 into a savings account in 2002, you would have earned around £158 in 2022, taking into account interest rate fluctuations.

If, on the other hand, you chose to invest these £500 in gold in the same year, your gold investment would have earned you... more than £1,700 if you had sold it in December 2022!

What are the key takeaways?

Obviously, 2022 was a good year for physical gold investors, who enjoyed a significant price increase in March. But it's still important to know when to sell your gold.

To learn more about gold investment and savings, don't forget to subscribe to our newsletter below. ⬇️


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