Invest in a savings account? Is it a good or bad investment? 🤔
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⚠ Investing carries a risk of losing money. I am not responsible for your financial choices.
The savings account ?
First of all, I think a savings account is a misnomer 😶
In my opinion, at best, a savings account is a reserve account with positive interest.
Indeed, according to an article from Moneyland1, Few banks offer an interest rate higher than 1% per year, usually paid on December 31st.
Some will say…
But it's great, it's still 1% of annual savings earned on my savings account...
If you think like that, let's take an example.
👉 You have 10,000 CHF in the account, and at the end of the year, the bank offers you 1% of interest. You therefore obtain 10,100 CHF, that is to say a gain of 100 CHF.
Now let's take into account 3 important details:
- Bank charges
- Inflation
- Limit on interest rate
Bank charges
Some banks charge significant bank fees!
Let's take the example of a bank that charges 100 CHF per year in fees. These fees only cover the maintenance of the account and the card.
Note that – 100 CHF for maintaining the account + 100 CHF with interest. So, we are at … 0 CHF.
It's no longer a savings account because you're not really saving. But let's continue…
Inflation
Note that in the majority of countries, inflation increases on average between 1 and 3% per year.
This inflation is invisible but it exists! For example, the increase in health insurance premiums, bread, real estate, gasoline, etc.
Let's say inflation has increased by 2%. If you spend, for example, 40,000 CHF per year, that's 800 CHF more.
Limit of 25,000 CHF
The final detail to consider is that most banks offer an interest rate, but in Switzerland it is often limited to CHF 25,000.
Therefore, from 25,001 CHF, the bank will earn you an annual saving of 0 CHF.
The Truth About Investing in a Bank Account
To conclude, if we analyze everything with the capital of 10,000 CHF.
- + CHF 100 interest (bank balance CHF 10,000)
- – 100 CHF bank account handling fee
- – 800 CHF of inflation
▶ Result: - 800 CHF!
In this example, which reflects reality, the client lost CHF 800 in their savings account despite a balance of CHF 10,000 and interest of CHF 100.
In this case, what can we do?
➡ I have always insisted that, in my opinion, the worst investment is not to invest!
After financial training, investing is mandatory in order to grow your money.
Simple investment example
Let's imagine that you don't need your 10,000 CHF in your bank account and you want to invest it.
That is, you are not going to touch this money for a while, say 5 years. And you let it grow with financial investments.
I'll take an example with Viac's Global 100. It's a 3a account that invests 99% of your money in the stock market.
Here are the average annual profits in 1, 3, 5 and 10 years (at the time of writing this article (2023)) 😉
➡ In this example, over 5 years, it's 4.9% annualized ❗
Next, I used Moneyland's interest calculator for 10,000 CHF with interest rates of 1.% and 4.9% over 5 years.
Here is the result
| 11TP3Q annualized (bank account) | 4.91TP3Q annualized (3a global 100 over 5 years) | |
|---|---|---|
| Interest in 5 years | 510 CHF | 2,702 CHF |
| Total (with 10,000 CHF starting) | 10,510 CHF | 12,702 CHF |
We see that a 3a global 100 account is generally much more profitable than a savings account.
In addition, the 3a account also allows a Swiss resident to reduce their taxes.
Do you need to have money in a savings account?
👉 Yes! It's definitely important to have some money set aside for unexpected expenses, so you have a reserve to cover unforeseen costs. !
For example: expenses for the dentist, the doctor, or car repairs.
I think it's necessary to have 3 to 6 months of reserve salary. Next, it's better to invest your money.
Choose a bank = Always without maintenance fees
I think you understand the usefulness of having a bank account without maintenance fees ❗
The goal is to save on bank fees.
Indeed, at the time of writing, the only Swiss bank accounts without maintenance fees are:
- Zak, free version
- Neon, red version
- Yuh
- Wir, free version
Additionally, they have very interesting features regarding investments, savings amount and wealth management.
I have written articles about my favorite banks on my page savings / frugalist.
Conclusion
Should you invest in a savings account? No!
👉 Having a savings account does not allow you to save if you have annual fees included!
And with a bank that has a no-fee interest rate, it helps financially, but it's not enough to offset inflation!
In my opinion, it is better to invest, for example, in a Viac 3a Global 100 account (approximately 6-8% per year over 10 years).
➡ However, don't forget to keep emergency savings in a bank account for unforeseen financial situations. I recommend having enough money to cover 3 to 6 months of monthly expenses.
⚠ Investing carries a risk of losing money. I am not responsible for your financial choices.
FAQ: Should you invest in a savings account?
Why is a savings account not enough to make your money grow?
A savings account primarily allows you to maintain a readily available financial reserve. However, its interest rate is often lower than inflation, meaning your purchasing power gradually decreases despite the interest earned.
Is a savings account a good investment?
No. A savings account is primarily a security tool, not a true investment. Its purpose is to protect your money in the short term, not to generate high returns.
Why does inflation cause a loss of money in a savings account?
When inflation is higher than your account's interest rate, the price of goods and services rises faster than your capital. Even if your bank balance increases slightly, your purchasing power decreases.
Should you keep money in a savings account?
Yes. It is recommended to maintain an emergency fund representing approximately three to six months of expenses. This reserve allows you to cope with unforeseen events without having to sell your investments.
How much money should you keep in a savings account?
The amount depends on your personal situation. As a general rule, specialists recommend a reserve of between three and six months' worth of living expenses.
Why is investing often more profitable than a savings account?
Investments such as ETFs, certain stocks, or specific funds have historically offered higher returns than savings accounts over the long term. However, they also carry a risk of capital loss.
Can bank fees cancel out the interest on a savings account?
Yes. If account maintenance fees are equal to or greater than the interest earned, your actual return can become zero, or even negative.
Why choose a bank with no account maintenance fees?
A no-fee bank allows you to keep all the interest earned on your account. Reducing fees is a simple way to improve your financial situation.
Can you invest all your money?
No. It's better to keep an easily accessible emergency fund before investing the rest of your capital in the long term.
What is the best investment after a safety net of savings?
There is no one-size-fits-all investment. Depending on your risk profile, you could consider diversified ETFs, a third pillar invested in the stock market (in Switzerland), real estate, or other investments suited to your objectives.
Why is the third pillar investment often more profitable than a savings account?
In the long term, a third pillar invested in stocks or ETFs can offer higher returns thanks to the performance of the financial markets. It also benefits from tax advantages for Swiss residents, while remaining subject to market risk.
Does a savings account protect against inflation?
In most cases, no. The rates offered by banks generally remain lower than inflation, which leads to a gradual loss of purchasing power.
Should you invest even with a small amount?
Yes. It's possible to start investing with just a few dozen or a few hundred francs a month. Regularity and investment duration are often more important than the initial amount.
Why is it important to start investing early?
The earlier you invest, the more time compound interest has to work. Even small, regular investments can generate significant wealth over several decades.
Savings account or investment: which to choose?
The two are complementary. A savings account helps finance unexpected expenses and secure your daily life, while investing allows you to grow your wealth over the long term. Ideally, you should first build up an emergency fund, then gradually invest any surplus capital.
Should I invest in a savings account?
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Are you rather minimalist or frugal Jonny?
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To conclude, I think the most important thing is to feel comfortable in your lifestyle 😊
Should I invest in a savings account?
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