7 Alternatives to Savings Accounts you should be aware of

Are you under 30, saving, and thinking about investing? Then you’re a Carregosa NextGen, and this is of interest to you.

Keeping your money in a savings account probably seems like the most sensible decision. It’s simple and always available, and doesn’t require much attention. Have you ever considered how much income you could be missing out on as a result of this "security”? If you want to make your money work for you without losing sleep, discover these 7 alternatives to savings accounts that could transform your financial future.

The advantages of a savings account

Savings accounts are a very popular choice because of the features they offer, which range from security to liquidity:

  •  Security: The Deposit Guarantee Fund protects your money up to €100,000;

  •  Immediate liquidity: You can withdraw the money at any time (in banking language, "mobilise”) without incurring any penalties.

  •  Convenience: Opening and maintaining a savings account is straightforward and does not require advanced financial knowledge or constant monitoring.

Limitations of a savings account

Although there are advantages to keeping all your money in a savings account, there are also several drawbacks that you should factor in before making this decision.

  •  Low profitability: Interest rates are very low, resulting in minimal earnings;

  •  Below-inflation return: The return may not keep up with rising prices, resulting in a decrease in purchasing power over time;

  •  Little diversification: You cannot explore other potentially more profitable investment opportunities;

  •  Unsuitable for long-term objectives: You miss out on the opportunity to grow your capital over the medium and long term.

Alternatives to a savings account

If you're looking for an alternative to a savings account, it’s worth checking out these alternatives.

1. Term deposits

In terms of remuneration (commonly called profitability) and security, a term deposit is perhaps the closest thing to a savings account that you’ll find, but with some important differences. With a term deposit, you receive interest at a fixed rate in exchange for leaving your money idle for a set period (for example, six months or one year). However, if you need to make a withdrawal before the deadline and the term deposit allows it, you may lose some or all of the interest.

This option is ideal for those with short- or medium-term goals who want to avoid market fluctuations.

The following options are available at Carregosa NextGen*:

  ·  Welcome Boost: This deposit is exclusively for new clients aged 30 or under and offers a highly competitive interest rate of 2.5% TANB for three months. All of this comes with guaranteed capital and the option of early mobilisation, albeit with a partial interest penalty;

  ·  Next Move: This exclusive deposit offer is available for NextGen clients who have previously subscribed to the Welcome Boost deposit offer. The deposit lasts for 3 months and has an APRC of 1.75%. It offers guaranteed capital and the possibility of early mobilisation, but this incurs a penalty;

  ·  Quick Win: This deposit allows you to choose short terms of between 1 and 180 days, with an APRC yield of 1.5%. This flexible option allows you to withdraw money whenever you need to, but you will incur a penalty if you do so early;

  ·  Grow On: This 12-month deposit has an APRC rate of 1.5%, and you can add amounts (top-ups) from €500 at any time, while enjoying the security of protected capital and a fixed income.

*Conditions available at the time of writing. Find out about the current conditions here.

Pros:

 

  ·  Guaranteed capital;

  ·  Secure income (fixed interest rate);

  ·  Straightforward and easy to understand.

Cons:

 

  ·  A penalty for early withdrawal;

  ·  Generally low return;

  ·  Does not protect against inflation.

2. PPRs (Pension Savings Scheme)/ UL (Unit Linked insurance plans)

Pension Savings Schemes (PPRs) and Unit Linked are long-term savings/investment products offering tax benefits.

You may think that thinking about retirement in your 20s or 30s is too early, but there are advantages to starting now.

PPRs are financial products designed to encourage long-term savings, particularly for retirement.

They are investment instruments offering tax benefits, which can be accessed as an investment fund (Pension Savings Funds) or a life insurance policy (Pension Savings Plan), depending on whether they are managed by a fund management company or an insurance company.

The aim is to build up a fund that can be redeemed upon retirement or in specific situations permitted by law, such as long-term unemployment, serious illness or purchasing a permanent home.

Pros:

  •  Tax benefits: you can deduct up to 20% of the invested amount from your income tax;

  •  It allows for one-off and/or periodic deposits;

  •  It offers a higher potential return than you would get from regular savings (with or without guaranteed capital);

  •  In exceptional situations, such as prolonged unemployment or serious illness, early redemption is permitted free of penalties.

Cons:

  •  Less liquidity, with limited redemptions;

  •  Penalties apply in the event of early redemption (i.e. before retirement or outside the legally prescribed conditions);

  •  Profitability varies depending on the type of Pension Savings Schemes (PPRs) chosen.

Unit-Linked products combine investment and life insurance, ideal for accumulating capital over the long term with flexibility and tax benefits.

They are insurance contracts linked to investment funds, enabling you to invest in a variety of assets (shares, bonds, etc.) and adjust your portfolio according to your risk profile and objectives.

These products have tax advantages: partial tax exemption on income after 5 or 8 years; in the event of the policyholder's death, the policy offers tax benefits, making them an efficient solution for wealth management and transfer.

Pros:

  •  Tax advantages: a favourable tax regime after 5 or 8 years of investment;

  •  Flexibility: you can select and switch funds according to your risk profile;

  •  Early redemption: you can withdraw your capital before the deadline;

  •  Potential for appreciation: gains are linked to the performance of financial markets.

Cons:

  •  Complexity: this type of structure, which combines investment and insurance, can be challenging for investors with less experience to understand.

  •  Market risk: the value of the investment depends on the performance of the selected assets (such as shares and bonds), and there may be capital losses.

  •  Uncertain profitability: there is no guarantee of a minimum return, as results vary according to market conditions.

3. Postal savings certificates

Postal savings certificates are a type of savings product issued by the Portuguese state.

The interest rate is variable and linked to the Euribor rate, which changes every three months. You can also earn a bonus if you keep the investment for a long time.

You can invest any amount from €100 up to a maximum of €250,000, and your money will only be "tied up” for three months. After that, you can withdraw it at any time without losing the interest that has already been paid. You should be aware that if you withdraw the money before the end of the quarter, you will not receive any interest that has accrued during that period.

Main pros and cons of postal savings certificates:

Pros:

  ·  They are guaranteed by the state, except in the event of sovereign default;

  ·  The minimum amount to invest is low (from €100);

  ·  Liquidity after 3 months, with the option to withdraw funds at any time without losing accrued interest;

  ·  A variable interest rate that can increase in line with the Euribor rate;

  ·  Long-term investments are rewarded with a permanence bonus.

Cons:

  ·  A variable interest rate, which may be lower during periods when the Euribor rate is low;

  ·  Loss of interest accrued in the quarter if you withdraw before the end of that period;

  ·  There may be times when profitability falls below the rate of inflation.

4. ETFs

If you’re looking to diversify your investment portfolio, ETFs (Exchange Traded Funds) offer a cost-effective way to invest in a variety of assets, including shares, raw materials and technology, at a low cost, with high liquidity and significant growth potential.

As with any investment, ETFs carry risks, such as market fluctuations and exposure to underlying assets. However, if you’re keen to take the next step and enter the investment world with greater autonomy, ETFs could be the ideal gateway for you.

Pros:

  ·  Immediate diversification is achieved by investing in several assets in a single product;

  ·  Buying and selling on the stock exchange is easy, with high liquidity;

  ·  Complete transparency about where your investment is going;

  ·  There is a wide variety of options available across different sectors, geographies and risk profiles.

Cons:

  ·  Fluctuating markets and underlying assets carry with them a certain risk;

  ·  There is no guaranteed capital, and the value of the investment may decrease;

  ·  Volatility can be high, particularly among more specialised ETFs and in volatile sectors.

5. Shares

When you buy shares, you are effectively buying a stake in a company. This means that you will benefit from its growth, either through the appreciation of the shares or the dividends the company distributes.

Pros:

  •  High long-term appreciation potential;

  •  You receive dividends;

  •  Direct participation in the company's growth and success;

  •  Wide variety of companies and sectors available for investment;

  •  High liquidity, as shares are traded on the stock exchange every day.

Cons:

  •  Higher risk due to the volatility of the stock market;

  •  Possibility of losing part or all of the invested capital;

  •  Choosing the right shares requires some knowledge;

  •  It may be necessary to continuously monitor the market and companies.

6. REITs (Real Estate Investment Trusts)

If you're looking to invest in property but can’t afford to buy a house, flat or warehouse outright, a REIT (Real Estate Investment Trust) could be a good alternative. These funds pool money from several investors in order to invest in commercial, residential or industrial property. The income (rents) is then distributed to investors in the form of dividends.

Pros:

  ·  Gain access to the property market with little capital;

  ·  Passive income through dividends;

  ·  Immediate diversification by investing in several properties;

  ·  High liquidity (REITs are bought and sold on the stock exchange like shares);

  ·  There’s no need to worry about maintenance or tenant management.

Cons:

  ·  Income depends on fund management and the property market;

  ·  Exposure to risks that are specific to the property sector, such as a lack of tenants or devaluation of the property.

7. Gold and precious metals

Gold has traditionally been used as a safe-haven asset, particularly during periods of economic uncertainty. Investing in gold or in other precious metals such as silver and platinum can protect your assets against inflation and market instability. There are several different ways to invest in precious metals. You can choose to buy physical gold (such as ingots or coins) directly, or you can invest in exchange-traded funds (ETFs) or investment funds that specialise in metals and mining company shares.

Pros:

  ·  Protection against inflation and economic crises;

  ·  Recognised as valuable on an international scale;

  ·  Their value can appreciate over time.

Cons:

  ·  They do not generate passive income in the form of interest or dividends;

  ·  Storage and security can be a problem when it comes to physical gold;

  ·  The level of appreciation depends heavily on demand and the global economic context.

The answer to the question: is a savings account the right choice for me?

If your main objective is to keep your capital safe and accessible, a savings account could still be the right choice. However, if you want your money to go further and are willing to take on a bit more risk, it could be very worthwhile to explore the alternatives we’ve suggested.

If you're ready to start investing, GoBulling Investor is the platform for you. It is secure and intuitive, giving you direct access to the financial markets. From your mobile phone, tablet or computer, you can invest in shares, ETFs (PRIIPs) and investment funds, monitor your assets and search for new opportunities.

Discover the best alternatives to a savings account with Banco Carregosa NextGen

One of the first steps on the road to growing your assets in a smarter and safer way is to explore alternatives to a savings account.

From postal savings certificates to ETFs, investment funds and shares, Banco Carregosa’s NextGen offers tools that adapt to your profile and objectives.

Now you know about these alternatives, it's time to choose the one that best suits your financial goals and start investing with confidence. Contact us.