Dutch people’s savings have increased sharply in recent months, but the interest they earn has not. If you want to put this money aside for later, here are the points to consider for getting more out of your savings.
By Erik Beckers
Earn more interest by comparison
Look for possibilities for your savings to grow faster. Compare the interest on savings paid by the various banks, and choose the bank that offers the highest interest. You will also earn more interest if you put your money on deposit for a longer period. If you choose a time deposit of 1, 2 or 3 years, you will receive a fixed interest that on inception will be higher than what you earn on savings available on demand. You should also compare the interest rates for time deposits offered by the various providers against each other.
Take more risk to earn a higher return
If you are prepared to take more risk with your savings and do not need this money for a longer period, such as 15 or 20 years, you could consider investing. Choose an investment that you understand, such as art or specific shares. You could also choose a combination of investment funds that will diversify your risk and reduce it as you get older, for instance with what is known as a ‘lifecycle’. Compare the costs of the various providers and how they invest, for instance whether they invest sustainably or not, and consider whether you should invest through an investment account or an annuity or pension product.
Protection against bankruptcy
If the financial institution to which you entrust your money goes bankrupt, you will lose all or part of your investment and the interest or return it has generated. There are protective measures in place, such as the deposit guarantee scheme for banks and the relief scheme for insurers. Make sure that the financial institution you are planning to invest with is covered by one of these protective measures.
Rules covering sickness or death
Check what happens to your investment if you fall sick or die. In some cases, the financial institution managing your money will continue your investment if you fall sick, or you may be able to access your investment earlier. If you die, your money can be paid to your surviving dependants or it will lapse to the financial institution that may divide it between other clients.
Rules covering withdrawals
Access to your money varies depending on the product, and sometimes from one provider to another for the same product. A savings or investment account is usually available on demand. With a time deposit, you are committed to the chosen term. With an annuity, apart from certain exceptions, you have to spread the benefit over a number of years. With a pension, you have to choose a lifelong benefit payment which will usually be spread over a longer period.
Check the tax implications
A balance in a savings or investment account is counted for the calculation of investment yield tax. A balance in an annuity or a pension product is not. Payments into a savings or investment account or a deposit are not deductible from income tax, and withdrawals are not taxed either. The reverse usually applies to annuities and pensions, and this can lead to a financial gain for you if the amount refunded from tax on the money you pay in is more than the tax you pay on the benefit payments. The disadvantage is that the return realised on the amount you pay in is not deductible, and is taxed when it is paid out.
Zwitserleven offers PensioenAanvullen
If your employer has arranged your pension with Zwitserleven, this could mean that you have the option of topping up your pension with Zwitserleven. You can place your investment in lifecycles, whereby your risk is automatically diversified and reduced as you approach your retirement date, and your inward payments may be continued if you become incapacitated for work. The balance is not included in the calculation of your investment yield tax and the amount you pay in can be deducted from income tax. In due course, your benefit payment will be taxed. Ask your employer or your adviser about all the other conditions, consider the available alternatives and get more out of your savings despite the current low level of interest rates.
This article is published on 07 July 2020