How safe is your money?
Have you ever wondered how safe your money is? At your bank, in your safe deposit box or in your securities account? We will inform you about the basic conditions and tell you where possible dangers lurk.
A question we often hear is: Which investments are really safe? The answer is relatively simple: deposits in current accounts, call money and time deposit accounts. Apart from the fact that in the current environment these forms of investment can only earn minimal interest, or no interest at all, or even negative interest, it is important to bear in mind as a matter of principle: If your bank goes bankrupt, the guarantee for your assets is limited to CHF 100’000,-- for demand deposits per bank and per customer. In the EU a similar regulation applies, here deposits are guaranteed up to an amount of Euro 100’000.--. Savers with higher amounts are therefore in a crisis (as seen 2013 in Cyprus) first in the fire and then possibly in the rain.
Interest rate landscape
Precisely because in the DACH region (Germany, Austria, Switzerland) no real interest rate (positive result from collected interest minus inflation) can be achieved with safe investments, many investors look to the right and left. This is because the interest rates on time deposit or overnight deposit accounts are usually higher at banks that are not licensed in Switzerland, Germany or Austria, but in another EU country.
In this case, always keep in mind that high interest rates are often offered by banks located in countries with low credit ratings. Be aware that higher yields come with higher risk. Many customers of Cypriot banks, driven by attractive conditions, have paid a bitter price, even though they were institutions from the EU area. Weigh up the risks carefully.
Deposits in accounts are one thing, securities accounts are another. The latter do not count towards deposit insurance because they are not a direct deposit with your bank. The bank only acts as a service provider for the management of your securities account. Thus, a securities account falls under the heading of “special assets”, which neither the bank itself nor its creditors can access in the event of your bank going bankrupt. As a customer, you can demand the return of the securities or have the entire securities account transferred to another bank. Funds in particular are considered an enormously safe form of investment. Firstly, they are subject to state approval and permanent monitoring by the state supervisory authorities (FINMA and BaFin) in Switzerland and also in Germany (compared to cryptocurrencies, for example -- link to article) and are therefore a safe and well-monitored capital investment. Secondly, funds themselves are also special assets and as such are protected in the event of bankruptcy of the investment company itself or even the custodian bank.
Securities accounts are therefore fundamentally safer than deposits in accounts. However, we are seeing more and more wording in the general terms and conditions of banks that make caution seem advisable here as well. Every now and then, we read in the fine print that there are risks even with a securities account if “…the bank is unable to return the customer’s securities in breach of its duties…”. This may be the case, for example, if a bank uses securities from customer securities accounts in securities lending transactions or to meet other delivery obligations. Therefore, whenever possible, exclude the use of securities in your securities account for lending transactions.
Safe deposit boxes
Quite a few bank customers have withdrawn their money from their accounts due to negative/penalty interest rates, which starts the dilemma of where to put it. If you do not have an absolutely secure safe deposit at home (safe, alarm system with direct line to security company or police), a safe deposit box is a popular alternative. Various pitfalls lurk here. Often the storage of cash is prohibited, on the other hand only the customer knows what is in a safe deposit box. In any case, the insurance sum of your safe deposit box is important for you. Often the standard sums are in the range of CHF 20’000.-- or similar amounts in Euro. An amount that is quickly exceeded if jewelry and gold are added. Get a detailed explanation of the conditions and take out additional insurance corresponding to the value of the contents of your safe deposit box. Also keep in mind that safe deposit boxes and safe deposit boxes must always be reported to the financial authorities in the event of death on the part of the landlord. You should be prepared for questions from the authorities about the contents.
Switzerland as a safe haven
No matter if you are a Swiss investor or if you are domiciled outside of Switzerland: Many people are not aware of what “asset protection” ultimately means. The above-mentioned points -- basic rules, interest landscape, security deposits and safe deposit boxes -- are important, but beyond that, how a state behaves towards its citizens with regard to financial assets is of central importance.
From our discussions, we often hear investors worry that their money is no longer safe. Swiss investors have fewer concerns in this regard, but many investors in the EU area are worried. This fear is mostly the result of developments in recent years, in which one can certainly get the impression that the state wants to gain more and more control over cash holdings and capital flows. The permanent discussion about a wealth tax -- especially in the EU area -- as well as the question about the financing of the Corona aid packages makes the desire for “asset protection” seem quite understandable from this point of view.
The Swiss franc is considered a hard currency and has been permanently more stable than the euro and also the U.S. dollar over the past years. These currencies have lost significant value against the Swiss currency during the numerous crises (financial crisis, euro crisis, trade tariffs, Corona).
What does this mean for you as an investor?
If you made an investment of EURO 100’000.-- in Swiss Francs in 2007 or 2008, the value of this investment has increased by more than 50% against the EURO just because of the currency development.
You are uncertain about the further development of the EURO?
You are afraid of a currency reform in the EU for debt redemption involving savers and real estate owners? Could this still have an impact on Switzerland and its investors?
You are worried about increasing government control of assets?
As in a portfolio, we advise you to broadly diversify your assets to reduce risks of any kind. With our locations in Switzerland and Germany, you decide where you want your money managed. We show you possibilities, talk about all details and help you with the implementation.
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