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Bank deposit only for liquidity management
If we may need the money tomorrow and do not want to incur a loss in the cost of redeeming our investment, or in exchange rate fluctuations, there may be virtually a single bank deposit, in which case we generally leave interest, but our capital is generally not damaged.
However, in terms of throughput production, it is not the best choice., as
With an average deposit in florins of less than a year, an annual interest rate of 0.3% can be achieved.
According to CSO data, inflation was 3.9% year-on-year in August; therefore, past performance is not even sufficient to cope with inflation.
You can only invest in a bank deposit because
- money is relatively liquid,
- we can’t go down much in terms of exchange rates or costs,
- If the bank that has the account goes bankrupt, the NDIF will compensate us up to 100,000 euros, but under current market conditions there is almost no chance of that happening.
Government securities are also good in the short term
If we don’t need the money tomorrow, but are willing to wait a few weeks or months, instead of a bank deposit, it is worth choosing government securitiesgiven that the return on deposits is already significantly higher than that of short-term government securities.
It is also important to note that government securities do not have to be held until the end of the term, they can also be retired before maturity.
That is, if we invest in a one-year government security, for example, we don’t have to keep the money in them for a year, We can even redeem the voucher the next day. The disadvantage of this procedure is that repaying too quickly can lead to a loss of capital, since the treasury recovers the securities at a fixed rate with a penalty rate of 0.25-1%.
The good news, however, is that we are getting accrued interest on anticipated repayments, so with most government securities, we’re within a few months.
Super government paper or premium government paper?
It is also a common question whether to buy MÁP +, also known as super government securities, or the premium Hungarian government securities with inflation tracking over a longer period of time. The most important difference between the two is that
- a MÁP + kamatozása arrangement, but it has been growing over the years, growing 3.5% in the first half of the year and then 0.5% annually thereafter, until reaching 6% in the fifth year; This means that you can achieve an average annual return of 4.95%,
- while a The interest rate of the PMÁP corresponds to last year’s inflation of + 1-1.4%, depending on the expiration date.
This means that if inflation exceeds 3.55%, the five-year PMÁP is already a better investment than the MÁP +.
In 2020, inflation is likely to exceed this value, a question of how much this trend will continue over the next five years.
There is also life insurance, but …
There may even be a single premium mixed life insurance if you want a fixed income investment. What distinguishes these products from unit-linked insurance is that here the insurer is in charge of placing our investment and sometimes even guarantees a minimum profitability, this is called technical interest. Unfortunately, in today’s performance environment most technical interest rates on single premium mixed life insurance fell to 0%.
However, the good news is that it has accomplished more than that. Part of the excess performance is also credited (usually 60-80%)however, this is usually not too high because most insurers invest primarily in government institutional deposits and securities.
So in terms of performance, life insurance may not be the best option, as
- although a expenses significantly lower than for regularly priced products, generally higher than the cost of a securities account,
- a fixed performance is usually low and in each case the gross value from which the costs still come,
- most products are not very liquidIt may take weeks for the amount withdrawn from the repurchase agreement to reach our checking account.
However, the extra cost is not without additional service, as these are additional to the products.
- we obtain personal and customer service advice,
- risk insuranceprotection (usually in case of death),
- 50% from 3 years, 100% from 5 years tax exemption,
- and it can even be contracted as pension insurance to which There is a 20% tax credit (if we don’t break the bill until retirement).
It is important to note that the technical interest rate will fall from the currently allowed maximum of 2.3% to 1.8% as of 2021, so that hwe are thinking of such a product, it is worth wrapping this up later this year.
That is worth taking care of
In addition to these, of course, other products offering a fixed return are also available, for example, more and more startups dealing with interpersonal (P2P) loans appear on the market, even in Hungary. There is even a service provider that mediates business credit, and even one that offers credit to cryptocurrency traders that is financed with money from retail investors.
Although there are companies that report that this is an investment opportunity that provides a security background similar to bank deposits, with a fixed return, it is worth treating these types of offers with caution, since the trader (bitcoin) to whom lending our money can fail at any time. The service provider’s guarantee fund (significantly smaller than the NDIF) can run out of money at any time.
Therefore, interpersonal loans should in no way be construed as a risk-free or even low-risk investment, even if it offers a fixed return.
Also, there are a number of seemingly high fixed yield investments that are downright fraudulent, and we write about them regularly:
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