Higher Deposit and Lower Interest
Building savings due to falling state premium is used by fewer and fewer Slovaks. Basic interest on new contracts has already fallen below 2% pa and, in addition, in 2016 you will have to put more money into building savings again if you want a full state premium. Who else is worth building savings?
Low basic interest and a high deposit on full state premium combined with financial commitment make building savings less attractive.
Despite this, building savings still benefit from its past and conservative approach of Slovak savers, who are attracted by a guarantee of interest and state premium. The habit is an iron shirt, and many people are loosing potential revenue.
Building savings interest fell below 2%
At present, building societies offer basic interest at new construction savings contracts at a maximum of 1.8% pa (as of 20 August 2015). There is a chance that in 2016 it may look similar and there is a chance that it may be even less. We’ll see what the building society will do.
How does it look in individual building societies? If you sign a new building saving, you can get such interest (as of August 20, 2015):
- First Building Savings Bank 1.75% pa
- Wüstenrot stavebná sporiteľňa 1.50% pa + extra 2.5% bonus, but only in the first year
- ČSOB stavebná sporiteľňa 1.80% pa
Yes, it is more than unbound savings accounts and current time deposits, but less than better term deposits and significantly less than a large number of mutual funds.
State savings in building savings will fall to 5% in 2016
The state premium will fall again in 2016. From 2016, the state premium will be only 5%. In order to receive the full state bonus, you will have to deposit a minimum of € 1,327.80 on your building savings account.
In the picture, you can see how the state premium is developing and the minimum deposit to earn it since 2010.
You can see updated information on building savings in this article: Building Savings in 2017 and Here You Can Look at How Building Savings Will Look Like in 2018.
Who is worth the building savings?
In my view, building saving pays off to a person who:
- Requires bank deposit guarantee
- they will be satisfied with lower returns (base interest max. 1.8%)
- is able to save a full state premium annually (€ 1,327.80 in 2016, € 1,207.09 in 2015),
- accepts the commitment of funds (6 years).
Conversely, for people who require a higher yield, do not require a bank guarantee, do not want to have money tied up or want to deposit less than the minimum deposit for a full state premium, it is in most cases preferable to prefer appropriately selected mutual funds before building savings.
In the latter category, I am also. I have had building savings for many years. However, this year I ended the last one and I do not intend to create another under these conditions. I wrote about where I value my money several times, eg. in this article on mutual funds.
Mutual funds earn more than building savings in the long run
If you want to earn more than building savings, then you have to abandon classic banking products. In most of them, evaluation often fails to even moderate average inflation over the last 6 years, which is also the period of commitment to building savings.