Pay to save? These are the best alternatives

It may come as no surprise to you that saving in the bank is not nearly as attractive as it was in years gone by.

In the past you could put your money in the bank, the bank used that money for all sorts of purposes, and in return you received a fairly nice interest rate, so that your savings account grew slowly but surely. It was quite a safe and mutually beneficial collaboration.

But currently, most banks rarely give you more than 0.1% interest, and in some cases you will even have to pay to leave your money there. After all, many banks in the Netherlands will allow you to pay as soon as you have more than €100,000 in your savings account (and in that scenario you also fall outside the Dutch deposit guarantee scheme)!

And banks do not rule out that that threshold will be lowered in the future.

Although of course there are always advantages and disadvantages with saving, nowadays the balance seems to lean strongly towards the disadvantages. A lot of people are looking for other options because of this, and in this article we discuss the 3 best alternatives that you have for this.

1) Invest

The best alternative to saving is without a doubt investing. This comes down to putting your money into a certain investment instrument and making a profit with it in the long run. Yes, from that description you can conclude that it is comparable to saving, but with two major differences:

• With investing comes more risk. No investment is 100% safe, so only invest money that you can afford to lose. There are a number of reasonably safe forms of investing, which usually also have a lower return.
• In almost all cases, investing has a higher return than saving.

Before worrying about that risk mentioned above, keep in mind that a) the risk is often not very great if you invest for the long term and that b) saving through a bank does not only come with risk (the bank can go bankrupt). go) but also with the certainty of loss of purchasing power due to inflation.

Simply put, if you make money less than the inflation rate (usually 1 to 3%) it loses value every year. This is an aspect of saving that many people don't think about, and when you take this into account it seems madness to not to invest.

There are a lot of things in which you can invest your money, which we briefly go over:

• Stocks :You buy part of a company and share in the profits. If that company does well, your investment will increase in value and you will even receive passive income in the form of dividends. It is of course possible that the company is not doing well, and that your investment therefore decreases in value.
• Funds: This is (simply put) a bunch of stocks collected, either actively managed (and charging you heavy fees for it) or passively managed, like index funds. The latter simply follow the course of a particular market, such as, for example, the S&P 500 (the top 500 companies in the United States). In the long term, such an index fund has an average annual return of 10 to 11%, which is of course a lot better than <1% at a bank.
• Real estate: Buying a house or apartment and either selling it for profit or renting it out for passive income is a very popular form of investment around the world. In fact, most millionaires have made their fortunes in real estate. This is a fairly safe form of investment – ​​provided you do your research and buy a property in a good neighborhood. The population increases every year, and all those people have to live somewhere, so chances are you will find occupancy for your property and earn a nice income every year.
• Forex: Investing in forex is simply buying another currency and hoping that it will appreciate in value. You can do this through banks (at high costs) or through various online brokers.
• Precious metals: Gold, silver and platinum have been a good investment throughout human history, and today is no different. These metals are valuable, globally sought after and almost always increase in value (gold at an average of 9% per year). Unlike other forms of investing, you will not earn a return in the form of an income, but rather in the form of an increase in value.
• Cryptocurrency: Ever heard of Bitcoin, Ethereum or Dogecoin? These are cryptocurrencies, a form of digital currency. The article would be too long to explain this further, but in short it boils down to a decentralized and revolutionary system of online payment, based on blockchain technology. Although there is a lot of risk involved, you can make a lot of profit in the short term due to the enormous volatility of cryptocurrency. For example, in one year (March 2020-2021), Bitcoin rose from $4,000 to $60,000. Seeing your money multiplied by 15 is unheard of with a savings account, but that is commonplace with crypto coins.
• Vary: You can also invest in all sorts of other unusual items that are increasing in value, such as vintage cars, art, Pokémon cards, watches, stamps, and so on. An additional advantage of this is that you can build a beautiful collection that will usually become more valuable every year.

2) Saving abroad

Although comparably low interest rates are awarded in most European countries, you can choose to open a savings account in another country and take advantage of higher interest rates there.

In most cases, this not only pays off, it also ensures that you bring strong diversification into your portfolio, because if your entire assets are in euros, you will be in trouble if that currency does poorly.

The disadvantage of such countries is often that they are a lot less stable than European countries, so there is a certain risk involved. Of course, you also have to take the inflation rate in that country into account, because if it is higher than the interest rate, you will of course lose purchasing power.

Some examples of countries with a decent interest rate are Mexico (6.15%), Brazil (5.04%), South Africa (4.88%) and the Seychelles (3.03%).

3) Pay off your mortgage or loan faster

If you have a mortgage for your house or apartment, you can always choose to make extra repayments. This way you will be debt free much faster, you sometimes pay less wealth tax and your monthly mortgage payments will be lower.

A disadvantage of this is that your mortgage interest deduction also decreases, so that extra repayment of a mortgage is not financially beneficial in all cases, so be sure to research your specific situation first.

With a normal loan (such as a student loan or for a car), it is of course only beneficial to pay it off immediately.