Saving Money Efficiently
Have you ever wondered whether the money in your savings account is working efficiently? What is the right amount to keep there? And why to even use one? Let’s have a closer look at this particular tool.
This article was written by Monika Souza, a financial expert from our family of expat-friendly services in Brno.
What’s a savings account for?
A savings account is ideal for building an emergency fund, saving for short-term goals like buying a car or going on vacation. Though these accounts typically pay a modest interest rate, their safety and reliability make them a great option for parking cash you want available for short-term needs. It’ll keep your money safer than under your mattress or in a sock drawer.
The absence of an emergency savings fund can lead to a severe financial setback. Unforeseen expenses will keep coming out of the blue. What happens if you’re unable to pay? Nowadays, you can literally apply for a payday loan on the web and get the money wired into your bank account the very next day.
This is a temporary band-aid to the problem, not a solution.
Another costly option is to charge it on your credit card. Even though some promotions picture a credit card as a great way to save money, tempting people with extra discounts in stores etc. If you’re not being able to pay off your balance in full every month, you’re going to end up paying thousands in interest. Usually between 24 – 26%.
But how to create an emergency pillow without feeling ‘short on money’? The first advice isn’t that hard to follow. Contribute monthly 10% from your income immediately after you’ve received it. Going the other way – depositing what’s left at the end of the month – might end up too tempting for many of us, buying something that we don’t actually need.
16 offers for a Czech savings account – a chart in English
Monika put together the conditions of opening a savings account at different Czech banks. She rather painstakingly read and translated even the small print to give you the info you need. Check it out.
How much to keep in your savings account?
The amount you carry in your savings account will depend on your goals for the funds, or your use of the account.
Generally speaking, you’ll be safe to keep 6 times your monthly expenses. Such amount can cover a drop of income due to sick leave, or you can easily replace a washing machine when the old one just washed its last load.
Are savings account efficient over a longer time horizon?
Apart from building up your emergency savings fund, the rest of your savings will do a better job somewhere else. Why? Because of inflation.
You need to protect your savings from inflation and depending on a certain time horizon and the purpose of your savings, invest the money wisely with a help of a financial advisor in mutual funds. They give individual investors access to professionally managed portfolios of equities, bonds, and other securities. Reduced portfolio risk is achieved through the use of diversification, as most mutual funds invest in anywhere from 50 to 200 different securities.
Even though you pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager, it’s a relatively small price to pay for getting professional help in the management of an investment portfolio.
Is it worth even if I’m not living in Brno indefinitely?
Even if you’re sure you’ll be leaving the Czech Republic within the next couple of years, making arrangements to save your money efficiently during this time pays off.
A savings account would work well for regular monthly deposits. For bigger amounts of money, a conservative fund solution can be a good choice – over at least a 3-year time horizon, though.
However, you can also choose an international mutual fund for a longer period of time (5 years and longer, typically retirement plan or a child saving plan etc.) which can be easily adjusted once you decide to leave the country. This option allows you to start making the most out of your money while you’re in the CR, no matter what country you’ll be living in by the time your savings plan will come to an end.
Whether you leave the country or not isn’t that important. The question you have to ask yourself is ‘When am I going to need this money and what is their purpose?‘ Based on your answer, a financial expert will help you make the right choice of where to safely and efficiently park your money.
This article was written by Monika Souza, a professional financial expert from our family of expat-friendly services in Brno.
She’s also put together this chart of the 16 best offers for savings accounts she found. This is just a taster, find the whole table with all the comprehensive information here.
|Bank||Max. interest||Initial deposit||Minimum balance||Required current account||Debit card offered|
|ČSOB||3 % p.a.||30.000 CZK||0 CZK||no||no|
|Artesa||2 % p.a.||0||0||yes||no|
|ING bank||2 % p.a.||0||0||no||no|
|Sberbank||1,75 % p.a.||0||0||no||no|
|Wüstenrot||1,7 % p.a.||200 CZK||0||no||no|
|Banka CREDITAS||1,6 % p.a.||0||0||no||no|
|Banka CREDITAS||1,6 % p.a.||0||0||no||no|
|Trinity bank||1,58 % p.a.||0||0||yes||no|
|Equa bank||1,5 % p.a.||0||0||yes||no|
|Banka CREDITAS||1,5 % p.a.||0||0||yes||yes|
|Hello bank||1,5 % p.a.||0||0||no||no|
|ČSOB||1,4 % p.a.||0||0||no (1 %) yes (1,2 %) yes (1,4 %)||no|
|Equa bank||1,3 % p.a.||0||0||yes||no|
|Air bank||1,3 % p.a.||0||0||yes||no|
|mBank||1,2 % p.a.||0||0||yes||no|
|MONETA Money Bank||1,2 % p.a.||0||0||no||no|