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Opening a Savings Account? Steer clear of these 3 biases

When it comes to opening a new savings account, it may not be as easy as it looks. There are different factors at play.

Investing or anything that has to do with money is more of a mind game. Not just investing, the way we bank is not free from biases. Here are the three top biases that come in between you and the optimal way that you should bank.

How familiarity bias impacts the saving account that you select

Our mind resists change. And we love to do things that are familiar to us. Don’t we take the same route to the office every day? We do that because we know that this particular road will be less jam-packed than the other streets. While sticking to the same route may help to reach your office on time, it may not be useful when it comes to fulfilling your financial goals or achieving a higher corpus.

Familiarity bias can be seen everywhere from the choice of savings account, sticking to fixed deposits or not investing in just a handful of favourite stocks. Because of this bias, and because it feels so good to be in a comfort zone, you may miss out on opportunities. You may stick to a bank even if they have pathetic customer service and no attractive benefits because your parents and grandparents have accounts with this bank.

Avoid herd mentality

Most of us want to feel like a part of a group. Thousands of years ago, it was necessary to belong to a group to survive. Time has changed, but our desire to belong to a group is the same. In the case with our money as well, we want to do what our peers are doing. Invest in the stocks that they are investing in. If they have invested in gold and have seen substantial growth, we waste no extra second in jumping the bandwagon. We may even redeem our money from our other sources to invest in gold.

While it may look all rosy from a distance, having a herd mentality may adversely impact your portfolio. One simple example would be to invest in stock market because all your colleagues have invested and have got handsome profits. That may not be the right thing to do because of your financial goals may be different than your peers. Your risk-taking capacity may be different. There might be a significant age gap as well. So if you think that you are losing out on extra interest by saving your money in safe options like recurring account and fixed deposits, think again. Stock markets may have made your friend rich, but it may not be the right thing for you.

Hence, it is always better to do adequate research and contemplate before you take any significant financial decisions.

How confirmation bias may stand in the way between you and a better savings account

Imagine you are researching something on topic ‘X’ on Google. You are most likely to open the article that tells you what you already believe, and you want to read. Clicking on the link that has a different viewpoint is rare. This is called confirmation bias.

Let us assume that you are deciding between opening a savings account in a private bank or a public sector bank. You are inclined towards public sector banks. In this respect, you are most likely to absorb facts and figures that put public sector banks in a positive light and ignore the other narrative.
Hence, you won’t be able to make a fair comparison. A private sector bank may have benefited you more than a public sector. But, because of the confirmation bias, you will lose out on the benefits.

These were the three most popular bias that can have an impact on the way you take your banking decisions or deal with your money. So steer clear of these biases.

These were the three most popular bias that can have an impact on the way you take your banking decisions or deal with your money. So steer clear of these biases.


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