By saving money with interest, you can grow your savings capital without having to lift a finger. This simply means that one’s savings capital can grow every year after the deferred interest rate, and that you not only get a return on the initially invested sum, but also on the growth that the investment generated in previous years.
In this guide, our Expert Panel gives an overview of the different types of savings accounts and what you should think about before you start saving with interest.
How to get the best savings rate?
KIM: Does a savings rate of 4.23 percent sound attractive? In 2011, you got so much from one of the major Swedish banks if you locked the money for five years. Today, no more than 0.65 per cent is obtained for the same binding period. Moreover, if you do not want to lock the money, the interest rate becomes almost non-existent. Thus, a savings account is not much better than having the savings in the mattress. Sure, at the bank, the money will not burn up or be stolen, but inflation will reduce the value anyway.
So what alternatives are there? Well, the easiest step is to avoid the big banks’ bank accounts. Instead, you can place the money at a smaller bank with slightly better terms. Today, you can get around 0.8 to 1.8 per cent, depending on the commitment period and the lenders.
What types of savings accounts are there?
SHARE PAPER: There are a number of different accounts to choose from and there are of course both advantages and disadvantages to all of them:
Bank account in the big bank
This type of savings does not normally yield a direct interest rate. Some banks give 0% interest and others 0.1%. This account is good for everyday expenses and for very short term savings. In other cases, some of the accounts below are recommended instead. Of course, this type of account has a deposit guarantee.
It is only here that there is some return on interest savings. You can get a return of between 5% and 10% and that is not bad at all. These types of interest rate investments are something for the risk-averse and absolutely nothing you put your entire savings into. The time horizon of these types of accounts is relatively long and I do not recommend it if you need the money within 1 year. This can be a good alternative to investing in preference shares or distributive shares. Just don’t forget that you should not put too much of your savings into risky investments.
What other types of interest saving are available?
Fixed income funds
Another way to save interest is to invest in fixed income funds. A short interest fund (money market fund) is similar to a regular bank account and has a low risk but, unlike the bank account, can decrease in value. A long-term fixed income fund (bond fund) involves higher risk but normally greater chance of value development.
However, it should be kept in mind that long-term mutual funds are not expected to yield as much in the coming years. This is because these funds go up when the market interest rate (the interest rate players are prepared to pay for different loans) goes down and vice versa. Since the market interest rate is expected to rise in the future, long-term fixed income funds will probably not yield much return in the future.
If pure interest saving does not feel attractive then a mixed fund may be an alternative. Then the money is invested in both interest and equities. The advantage of this is that it combines two asset classes that complement each other and in the long term provide a more stable development that is higher than a fixed income fund but lower than a pure equity fund.