The Swiss National Bank (SNB) recently raised its key interest rate for the fifth time in a row. The latest increase to 1.75 percent is slowly filtering down to savers as well. UBS and the Zürcher Kantonalbank (ZKB) both responded to the SNB newest interest rate hike by raising the interest rates of their conventional savings accounts from 0.5 to 0.75 percent (for up to 50,000 francs). Customers of neobank Yuh – a joint venture between Swissquote and Postfinance – now earn 1 percent interest per annum on the first 25,000 francs of their balance, instead of the previous 0.75 percent. Other banks too have raised the interest rates of their savings accounts. The current average annual interest rate across Swiss savings accounts for adults is now 0.6 percent.
Savings accounts, which were largely ignored during the period of no or even negative interest rates, are becoming a lot more interesting in today’s changing interest environment. The stock market’s recent volatility and susceptibility to loss have also played a role. Across 2022, the Swiss Market Index (SMI) recorded a major loss of 16.67 percent. The market has begun to recover somewhat since October 2022.
Investing brings higher returns than saving in the long term
The climbing yields of savings accounts should be taken with a grain of salt. The interest rates of Swiss savings accounts are still significantly lower than the current 1.7-percent inflation rate. The yields are not sufficient to compensate for the total loss in buying power.
While the stock market may experience daily fluctuations during times of economic and political uncertainty, in the long term, it will likely remain the more attractive option for investing wealth. The historical Swiss interest rate and stock market return calculator on moneyland.ch illustrates how past savings account yields directly compare to past stock market returns. Their performance is much poorer.
Savers who deposited 10,000 francs in a Swiss savings account in 2002 would, 20 years later, have made just a modest profit, ending with a total account balance of 10,714 francs. That translates into a return of 7.14 percent. Accounting for inflation, they actually made a loss of 3.39 percent. The same amount of money invested in the SMI at the same point in time would have delivered more substantial returns. The 10,000 francs would have more than tripled in value to 30,193 francs. After accounting for inflation, the investor would be left with a real return of 27,225 francs.
But it is important to note that investments in the stock market are subject to larger risks than simple fluctuations. Specific stocks, like UBS, for example, have delivered negative performance over that time frame. That why it is advantageous to invest in broadly-diversified exchange-traded funds (ETFs) or index funds that, in turn, replicate entire stock indexes like the SMI or the Swiss Performance Index (SPI). Actively-managed mutual funds primarily benefit banks, while delivering returns that are usually lower than market performance.
Investing in the stock market also requires a long investment term of many years. Do not sell your stocks at a loss the moment they fall below the price you paid for them.
Savings accounts are the better choice in some cases
If you will need the money in the foreseeable future, or if you are generally risk-averse, then you should focus on savings accounts. In addition to interest rates, it is also important that you pay attention to limitations on withdrawals, and to required notice periods. The comprehensive comparison on moneyland.ch helps you find a suitable savings account. Private accounts are generally not suitable for saving due to their low interest rates, and are primarily useful for making financial transactions.
More on this topic:
Compare Swiss savings accounts now
Compare Swiss stock brokers for investing in stocks and ETFs
Historical interest and returns calculator
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