One of the things that many people fear is inflation. Inflation makes our wealth less valuable compared to the previous year.
Many people try to preserve their wealth through investment. However, investment comes with different risks. For example, deposits have the lowest risk.
A deposit is an investment instrument where you put your money in a bank for a certain period and get interest. However, during that period, you cannot withdraw your money until the agreed period ends.
Nevertheless, investing in deposits can also have high risks. This can happen if you put your money in an uncredible institution.
Recently, Indonesia was shocked by Indosurya Cooperative, which raised funds of hundreds of trillions of rupiahs. Some people would believe it because many people have put their money there. However, as investors, we must be very critical in making decisions.
Frauds
Investing in deposits has drawbacks compared to investing elsewhere. One of them is the low interest rate on savings.
Therefore, many new institutions are trying to take advantage of this area. For example, by offering high deposit interest rates.
What you need to understand before buying an investment product from an institution is how good the place is where you buy the investment product. You certainly wouldn't entrust your money to a garbage dump.
One of the easiest indicators to determine the credibility of an institution is how they spend the profits from their business. For example, if most of the business profits are used for extravagance, even to buy a private jet, then you should be careful.
We know that business competition is very tight, so good institutions usually manage their finances as best as possible and avoid excessive spending. Using simpler facilities actually increases the percentage of an institution's success because it has lower liabilities.
Not Fit to Logic
We know that to avoid pitfalls, we need to be critical. One of them is to know how institutions offering deposits work.
Usually, deposits raise funds from the public. Then the money is managed or loaned to others.
An institution takes advantage of the difference between the deposit interest rate offered to the public and the loan interest rate offered to businesses. That's how the average deposit works.
Therefore, it is very illogical if someone offers a deposit interest rate that is too high. For example, if a deposit offers 10% per year, then what percentage of loan interest rate will be offered to businesses? The higher the deposit interest rate, the more cautious you should be.
In fact, with the loan interest rate offered by conventional banks, many businesses still have difficulties paying installments, so what would it be like for businesses that receive interest rates above that? Meanwhile, the deposit interest rate of conventional banks is mostly below 5% per year.
Always Set Eagle Eye To Central Bank Rates
As investors, we need to be critical. For deposits, one thing we need to pay attention to is the central bank interest rate.
The Central Bank is the core of the banking system in each country. So, it's very normal to compare investment products with the central bank interest rate.
The Central Bank interest rate can go up or down. It depends on the economic conditions. For example, after the United States Central Bank printed a lot of money and raised interest rates, the Indonesian Central Bank responded by raising interest rates as well.
For instance, before Covid, the central bank interest rate was pretty low. This means that deposit-taking institutions that need funds from the Central Bank will incur interest rates that are not far from the central bank interest rate.
This means that deposit-taking institutions tend to profit by raising funds through deposits with lower interest rates. So, if someone offers a deposit rate that is higher than the central bank interest rate and seems unreasonable, you should be careful.
Do More Research
To succeed in managing finances, it is important to be highly critical. You can't just follow what the majority of people do, you need to be a few steps ahead of them.
When it comes to investing in products like deposits, there are a few things that need to be scrutinized, such as how the institution manages its finances, the central bank interest rate, and the institution's borrowing partners. By considering these three things, you can stay ahead of the general public.
The management of a company's finances can be seen through its liabilities. Companies or institutions with high liabilities are not useful and are at high risk of bankruptcy. Investing in their products can put your money at risk instead of generating profits.
Secondly, the central bank interest rate is crucial and must be updated regularly. Some institutions even trade bonds, where the central bank interest rate plays a significant role in their success. Don't entrust your money to institutions with high bankruptcy risks.
Lastly, researching the borrowing partners of an institution is important. This helps you determine the long-term prospects of the institution, whether it will survive or go bankrupt. By doing so, you minimize the risk of putting your money into an investment product.
