30 January 2020
Why savings lose their value
Life gets more expensive every year. At the same time, savings are barely showing any yield at the moment. But is there a way to achieve returns without losing purchasing power? And above all: without taking irresponsible risks?
It has been more than 3 years now since the interest on most Belgian savings accounts dropped to 0.11%(1). It will stay at that level, because there is very little chance that this historically low rate will move in 2020. If an interest rate rise does follow, it may be very low so as not to cause too much disruption in the markets. Moreover, an increase is unlikely to translate into an immediate rise in the interest on your savings account
Savings down in value
Today, 1,000 euros in a savings account yields a mere 1.1 euros at the end of 1 year. However, while interest rates remain at rock bottom, inflation is rising, which means that the average price of goods and services in Belgium is rising too. As a result, you are losing purchasing power.
Record levels in accounts
Nevertheless, the volume of money in our savings accounts is increasing steadily. According to the National Bank of Belgium (2) there was around 278,8 billion euros in savings accounts in November 2019. In the recent years, current accounts have held around 90.7 billion euros. It is noticeable that many Belgians are no longer even taking the trouble to transfer money from their current to their savings account. In some years, the money lying dormant in a current account actually doubled.
Investing while keeping risks under control
However, the majority of Belgians do want to see their money growing, but shy away from the risks associated with investments. Many are well aware that investments can potentially bring higher returns, but they prefer to play it safe. Nevertheless, there are alternatives. One option to perk up your savings is by way of regular investment.
What is regular investment?
With regular investment, you spread your investments over time. You do this by investing a limited sum regularly (from 25 euros per month).
The advantages of this:
- you spread the risks.
- you avoid investing all your available savings ‘too early’ (if stock markets continue to slide) or ‘too late’ (if stock markets are already close to their highest point).
- you smooth out peaks and troughs on the stock market.
- you get a potentially higher average return.
- you prevent yourself from basing your decisions on emotions (selling in a panic if the stock market falls or buying in euphoria if it soars).
With regular investment, you have more than just a very low threshold (25 euros per month). You also enjoy the freedom to stop making your investments, temporarily or otherwise. However, it is important to maintain the frequency (monthly, quarterly, bi-annually or annually) if you invest regularly, and to set a long investment horizon. It’s best to reckon on at least 3 years.
Funds to suit you
After you set the frequency and amount of your regular investments, one crucial question naturally still remains: which products will you invest in? Funds offer the advantage that they invest in dozens (sometimes hundreds) of different stocks and/or bonds and therefore spread the risks. For that reason, they are a smart choice. Once you and your advisor have created your investment profile together, ING’s experts select the most suitable funds on the basis of your profile. The funds - whose development ING also monitors - are selected from products offered by our partners.