Should I put $500k into a bank with an interest rate of 13%?

Sometimes I write answers to financial questions on Quora.

The asker of this question added:

In my country, we have that high interest if you deposit that amount of money in a local currency. Our currency has been devaluated by 100% in 20–4–15. I really don’t think that it will happen again in any time soon, as oil prices started to increase and economy is getting more and more stable.

Here’s my answer:

In 2014, a client was about to invest $200K with me. A few days before, news of the Ebola epidemic broke, and he called me. He said, “Maybe we should wait till this epidemic is over before I invest. It’s going to cause the market to go down.”

I told him, “No one knows how the market will react. I advise you to invest now.”

He did.

The Ebola epidemic didn’t make a dent in the market and soon after, it spiked. He was glad he listened to my advice. But really, I didn’t do much. All I did was to be very aware that no one can predict the future, and don’t try to do so.

“I really don’t think that it will happen again in any time soon.”

This sentence will be the cause of you losing money, if any. Because what you have done here is to try to predict the future.

No one can predict the future. Many people will try and most will get it wrong, yourself included. Even if it’s not oil prices, something else can happen to devalue the currency again.

To put money in a bank with 13% interest tells me that inflation in your country is higher than that, and that your currency strength is weak.

These are the two things you need to consider when you decide what to do with your $500K. If inflation is higher than the interest rate, then even with 13%, the real value of your money will continue to decline. Add that to the fact that your currency strength is weak, and the value of your money also tends to decline.

In such a case, you may consider putting the money into a different currency, one that has historically shown itself to be strong and stable. Alternatively, you can consider investing the money in an asset class that tends to retain its value over time. Examples include gold and land.

Take note, however, that this answer addresses your question alone, and does not take into account your overall financial situation. You should seek the advice of a trustworthy and competent holistic financial planner before making any major investment decision.

This article was taken from Lumina Planners, the fee-based financial planning arm of Elpis Financial.

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