Low interest rates render savings accounts obsolete
The cut in the basic euro rate by the European Central Bank to 2.75 percent and the consequent reduction in savings rates by most banks has brought renewed interest in alternate savings methods. Indeed, savings rates of 1.5 or 2 percent, together with the 15 percent tax on interest make a mockery of this traditional form of popular savings. Depositing their money in the bank makes customers lose money, since the annual yield is lower than the current inflation rate, which is 3.7 percent. No depositor should stand idly by and watch his or her capital being diminished; especially since banks themselves offer alternative ways to make savings grow. The most interesting alternative to a savings account is that of the guaranteed capital products. In most cases, the pooled capital is invested in bonds with a guaranteed yield, which ensures that the depositor’s capital will remain intact. The remainder is linked to a stock market index or to an exchange rate, usually that between the euro and the dollar. If all goes well, the depositor-investor can make handsome gains, up to about 10 percent annually. These products usually have a duration of two or five years although in Greece they are offered for a period of one year or even six months, a way, say bank managers, to educate the public in the benefits of such products. The second alternative is mutual funds. Currently, about 40 percent of the mutual fund market is taken up by money market funds. They have the advantage of being flexible – the money is not tied up but can be withdrawn at any moment – as well as tax-free. Securities funds take up 20 percent of the market. They offer somewhat higher yields but are more vulnerable to bond price falls. A third alternative to deposits are the so-called composite deposit products. Most of the money goes to a time deposit, with a higher interest rate than the simple time deposit, which, in turn, is much higher than the savings rate; the rest is invested in mutual funds.
