How to Save and Invest Money When Interest Rates Are Low

Times are tough for Swiss savers.

Although the longstanding negative interest rate environment has finally turned around, the interest paid by banks for money invested in pillar 3a pension accounts, vested benefits accounts, savings accounts and private accounts is still very low.

The mean average interest rate across Swiss savings accounts for adults sit near a sad 0.2 percent. The mean average interest rate of 3a retirement accounts is 0.27 percent, and that of vested benefits accounts is 0.1 percent. The average interest rate of private accounts for adults is still a pathetic 0 percent.

What can savers and investors do? Here, moneyland.ch lists useful tips which can help you to optimize returns on your savings.

Option 1: Use savings accounts

• Savings accounts traditionally have somewhat higher interest rates than the private accounts (checking accounts) used for financial transactions. The vast majority of Swiss private accounts pay 0 percent interest per year. So it makes sense to keep larger amounts of money in a savings account instead of your private account, as much as possible.
• Compared to higher-yield investment products like pillar 3a retirement accounts and medium-term notes, savings accounts have the advantage of easier access to savings. However, you should still inform yourself about possible withdrawal limits or notice periods. The rule of thumb when it comes to savings accounts is that the higher the interest rate is, the more limitations apply to withdrawals. The interactive moneyland.ch savings account comparison clearly lists withdrawal limits and notice periods.
• The interest rates of most Swiss savings accounts may have risen somewhat, but depending on the bank, they can still be very low. That is why comparing offers is important.

Option 2: Use the pillar 3a

• If you expect to park your money for a very long time – until you retire, buy a home, or leave Switzerland – funding your voluntary 3a retirement savings can be a good investment because money contributed to 3a savings can be deducted from your taxable income.
• Another advantage is that the interest rates of pillar 3a accounts are generally higher than those of savings accounts. There are big difference between the interest rates used by different banks, so comparing offers is important. You can do that using the comprehensive pillar 3a retirement account comparison.
• Disadvantages of 3a retirement accounts: The amount which you can contribute to pillar 3a savings is limited. Additionally, assets placed in 3a accounts cannot be withdrawn until you reach the legal age (some exceptions apply).
• 3a retirement funds or 3a investment fund accounts can potentially deliver higher returns than the interest paid by 3a savings accounts. You can find more information in the moneyland.ch guide to 3a retirement funds.

Option 3: Use medium-term notes

• For longer saving terms, the interest rates of medium-term notes are generally higher than those of savings accounts – at least in the case of the highest-yield notes.
• There are major differences in the interest rates offered by different Swiss medium-term note issuers. The moneyland.ch medium-term note comparison makes it easy to find the medium-term notes which pay the highest interest.
• The disadvantage of medium-term notes: Your money is tied up until the end of the savings term. The interest rate remains the same across the full term. Because you cannot withdraw your money until the end of the term, you may miss out on opportunities to invest it more profitably if better offers become available.

Option 4: Buy shares in stocks or ETFs

• Advantage: Investing your money in stocks can potentially bring you higher returns than placing it in a savings account.
• Disadvantage: You risk losing money if the value of your investments declines. Investing in shares is only suitable for savers with a high risk tolerance.
• Various signals in the market have led many market observers to predict somewhat negative developments in stock prices. However, there is no accurate way to choose the best time to invest in stocks in advance.
• A basic principle which generally applies is that stocks should be held over long terms – a minimum of seven to ten years – in order to wait out possible price corrections and fluctuations. Another rule is that you should invest in stocks using an affordable stock broker in order to minimize costs.
• Be wary of expensive, actively-managed investment funds. Take the time to consider more affordable alternatives like ETFs. Using affordable digital asset management services which invest in ETFs is also an option.

Option 5: Pay your taxes in advance

• Depending on your canton of residence, you can earn up to 1% interest on advanced tax payments.
• Interest paid by tax offices is no longer as high as it once was. In some cantons, you do not get any interest at all. You are also limited to advancing an amount which more or less correlates with your anticipated tax bill. You can find more information in the guide to interest on tax advances.

Option 6: Real estate

• Since the turnaround in interest rates, the cost of fixed-rate mortgages has gone up sharply. That has made real estate less attractive as a pure investment vehicle. But the value of Swiss property remains high, and many experts expect that it will increase further.
• The value of residential property can fluctuate, so investments in real estate are not risk-free.
• A key requirement for investing in real estate is that you have enough investment capital and meet mortgage affordability requirements. In addition to investment properties, buying a home in which you will live in yourself can also be a real estate investment.

Option 7: Other tangible assets

• While tangible assets do not yield interest, they can be worth considering when you are unable to earn interest at attractive rates. In addition to conventional tangible assets like stocks and real estate, more alternative tangible assets like art may also be worth considering.
• In the case of alternative assets, it can be very difficult to systematically track prices across entire markets in order to determine their profitability. But as with other investments, you need to be prepared for market fluctuations.
• Finding a buyer more uncommon alternative assets can be a lengthy process, as markets are typically very small. So converting these assets into cash often requires a lot more patience than selling more liquid assets like stocks.

Rules of thumb for would-be investors

There are many ways in which you can invest capital. These two rules of thumb apply a majority of investments:

1. For investments: The higher the potential returns, the greater the risk of loss.
2. For interest-based savings products with no direct risk of loss: The higher the interest rate, the tighter the limitations on withdrawing your money.

More on this topic:
Swiss savings account comparison
Swiss 3a retirement account comparison
3a retirement fund comparison
Medium-term note comparison
Securities broker comparison