5 reasons to activate your savings

Keeping money in a savings account may give you peace of mind but inflation eats away at the value of your savings. Read about the effect of compound interest and four other reasons why you should start monthly saving in funds today.

1. Monthly saving helps you avoid the pitfalls of saving in an account

Inflation is the rate at which the prices of goods and services increase. As a result of inflation, the value of your money decreases so you get less for the same amount of money you needed before. If interest rates are low and inflation is high, the value of your money will decrease even further.

Most Finns’ assets consist of their home and savings kept in accounts, which means inflation could have a significant impact on their finances.

By saving in a fund each month, you can aim for a higher return on your savings. You don’t need to have a large amount of money to invest – the most important thing is to start today. Your savings will benefit from the effect of compounding and could be worth a lot more over time. 

Why settle for a zero interest rate in your account? Put your money to work!

Investment funds are a good option for long-term saving. The returns your investments generate over time may provide a considerable source of income in addition to your salary or entrepreneurial income.

2. Time is on your side

When it comes to investment, our top tip is a simple one: start now. Ideally, your parents would have started to save money for you when you were born but more often than not people get into the habit of saving themselves around the age of 30. Time is your most valuable asset and the longer you wait the faster it will run out. 

You should start saving immediately even if you have a small income – after all, time is money, so why waste it? The force behind all this is what some people call the eighth wonder of the world: compound interest. If you are wondering how you can save money on a low income, read our tips for saving.

How much money should I have in my current account?

A good rule of thumb is that you should keep a rainy day fund equal to your net salary for three months in an account. By doing so, you won’t have to sell your investments as soon as you run into some unexpected expenses.

3. The effect of compound interest

Time is not only your best friend when it comes to investing but it also helps you earn money off of your existing investments. This phenomenon is called compounding. To put it simply: compounding means that you are earning interest on the amount you have already invested. How does it work?

Let’s say you invest 1 000 euros this year with an expected return of 5%. This means that the return on your initial investment will be 50 euros, which will increase the total value of your investment to 1 050 euros. 

What happens if you don’t invest more money next year? You may still get a return on your investment. How is that possible?

Let’s say that you get the same 5% return on 1 050 euros. Last year, your return was 50 euros but now it will be 52,50 euros, as your initial investment has grown 5% from the year before. This means you will have 1 102,50 euros in total.

This is an example of how compound interest works. The effect is at it's best when you save regularly. Read more about the benefits of monthly saving.

4. Don’t wait around

Many people tend to avoid saving and investing because they are afraid of making mistakes in choosing equities or funds. They may think investing is difficult or that you need to be an expert to get started. But anyone can become an investor and there’s no need to wait for the right time because the right time is now. Sometimes the prices go up and sometimes they go down but that doesn’t matter if you are saving in funds. By saving monthly, you are already diversifying your investments and risks. When you add compounding to the equation, you can see that your money is truly working for you.

5. Getting started has never been easier

At Nordea, you can find a way to save that best suits you. We offer you a wide range of the latest savings products and various forms of saving at different levels. 

You can start saving with the help of our robo-adviser Nora, meet with an investment adviser, design your own portfolio and much more. Our expert advisers will help you take your savings journey to the next level and make sure you are in control of your savings.

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Important information about investing

The information provided on this website is intended for general product information only and does not constitute investment advice or recommendations. When it comes to funds or equities, past performance is not a guarantee of future results. The value of fund units or equities may increase or decrease due to market movements, and it is not certain that you will get back the entire amount you invested.