Ever wondered what safe “destinations” exist for your money? Where you can apply your savings with the certainty that do not risk losing part of the capital? If yes, what are you looking for are instruments with guaranteed capital – what we can call safe investments – which give you the guarantee that, at the end of a certain period, recover all the money you invested.
It looks perfect, right? But security has a price. And in the case of investments, it’s called profitability. Opting for a capital-guaranteed solution, will have to sacrifice the possibility of obtaining an attractive return of your money. Because security and profitability have an inversely proportional relationship here: the safer the instruments, the lower the return, and the less secure, the greater the return.
Anyway, any yield is better than neno income. And any of the instruments with guaranteed capital will be more beneficial than having your money parked in a current account, losing value due to the corrosive impact of accelerated price growth. Although none of the guaranteed capital solutions can counteract the effect of inflation, there are instruments, such as savings certificates, that are starting to become attractive.
if you have one conservative profile and privileges the security of their savingssee here what investments you have available to invest your money.
They are the best known and most used instruments by the Portuguese to apply their savings. They differ from current accounts that we use every day precisely because they not be moved during a certain periodleaving the money “parked” to earn interest.
That is, once the deposit period has been completed, you have guaranteed its initial capital plus interest generated during that time. The form of payment of this interest depends on the term deposit you choose: it can be quarterly, for example, or a single payment at the end of the term.
Through a term deposit, you can also benefit from the multiplier power of compound interest. This is because, in the case of capitalizable deposits, interest can be added to the “cake” to yield more in the following period, instead of simply being credited to your current account.
The security of term deposits is protected by a series of guarantees, starting with the fact that only entities authorized by the Bank of Portugal can receive deposits, with compliance with the rules being ensured by the supervisor. In addition, all deposits up to €100,000 are protected by the Deposit Guarantee Fund. Which means that even in an extreme case of bank failure, depositors’ money (within that limit) is safe.
All these advantages are accompanied by a limitation, which is profitability. In recent years, the interest offered by deposits has been practically nil and, although they are increasing, they will hardly reach a very attractive level. In the same way, interest is subject to a tax of 28%which compares poorly with alternatives such as PPR.
Also read: Term deposits: what you should know
Are debt instruments created with the purpose of capturing savings of families and, at this moment, the best alternative among products with capital guarantee. This guarantee is given by the Portuguese State itself, which is the one who is lending money when subscribing to these products. Savings certificates are issued in series, the E Series is currently on sale.
In this product, interest is calculated monthly based on the average of Euribor at tryou months ten working days, so it’s a good way to benefit from the recent increase in these rates. For subscriptions in September, the gross interest rate was set by the IGCP at 1.43%, which translates into, in net terms, in a remuneration higher than 1% (28% withholding fee is retained). This is the highest figure in the last decade, which puts this savings solution at an advantage over other guaranteed capital instruments.
Savings certificates also allow you to benefit from the capitalization of interest: On a quarterly basis, certificate holders receive interest that is added to the initial capital to generate even more interest. From the second year onwards, in addition to the base rate, you benefit from a 0.5% permanence premium. From the 5th year, the permanence premium increases to 1%.
The term of the Series E Savings Certificates is 10 years, but only cannot withdraw the money during the first three months. You can then pick it up (part or all) at any time and free of charge. If you don’t withdraw your savings sooner, you will receive it, with the interest you have earned, 10 years later.
In this product, the minimum investment is 100 euros and the maximum is 250,000 euros.
Also read: Money sitting in the bank? Savings certificates already yield more than 1%
Like savings certificates, are public debt instruments guaranteed by the Portuguese State. Currently, however, they yield less than the previous solution and do not allow you to benefit from the capitalization of interest. Those currently on sale, the Treasury Savings Certificates have a term of seven years and a fixed annual interest rate. (which increases every year from the 3rd year onwards), plus a remuneration bonus from the 3rd year onwards.
Thus, the Certificates of the Treasury Poupança Valor pay 0.7% in the first two years, 0.8%, 0.9% and 1% in the following years, and in the sixth and seventh years they offer a remuneration of 1.3% and 1 .6% gross. we talk about a average gross rate of 1%, if it holds the titles for the seven years. This is because you can redeem your money at any time from the first year.
To this fixed rate is added a remuneration bonus from the 3rd year, which corresponds to 20% of the average real growth of Portuguese GDP in the four previous quarters. It can be a maximum of 1.5%.
Interest is transferred annually to the bank account associated with the Aforro Account, after deducting the 28% tax.
In this case, the Minimum investment is 1,000 euros and a maximum of 1,000,000 euros.
Also read: Savings and treasury certificates: Weigh pros and cons before investing
Retirement Savings Plans (PPR)
Attention that only some PPR have guaranteed capital. If you are going to opt for this alternative, specifically look for a PPR with a capital guarantee, to make sure you are not taking any risks and that you will receive all your money. if you have one conservative profile and is 10 years or less of retirement agemay be the ideal solution for you.
These products are generally referred to as PPR insurance since they are associated with capitalization insurance. They are usually managed and marketed by insurance companies and, in many cases, in addition to guaranteeing the capital invested, they offer a minimum income defined right from the start.
However, in order to have stability and security, you will sacrifice the return: as with term deposits, the profitability of these products is very low.
They are distinguished, however, thanks to the tax benefits they provide in deliveries and at the time of redemption. The amounts delivered annually can be deducted from the IRS, depending on age and the limits of total tax deductions based on income.
Also at the time of redemption, you benefit from more favorable taxation in relation to most financial products. If the redemption is made under the conditions provided by law (such as being over 60 years old, serious illness, long-term unemployment, etc.) income tax rate of only 8%.
However, even if the redemption is made outside the legal conditions foreseen, taxation is more favorable than for most other products: before 5 years it pays 21.5%, between 5 and 8 years 17.20%, and more of 8 years 8.60%.
Also read: Guide on PPR: No more doubts about Retirement Savings Plans
Like PPRs, they are long-term financial investmentsand which allow you to benefit from a more favorable taxation of income compared to other products.
We are talking here about an application that is constituted in the form of insurance, but it does not work like a conventional insurance, since it is not intended to protect any accident, but to capture savings. You can invest your capital in these products by paying a single premium at the beginning of the insurance contract, or by paying a premium periodically.
In addition to the capital guarantee, have a guaranteed minimum return and, in some cases, a portion that may vary depending on the insurer’s profits. It should be noted, however, that, unlike term deposits, insurance does not have a guarantee fund, so the security of the capital invested essentially depends on the insurer and the quality of its balance sheet.
Income taxation is more favorable the longer the period of stay. If you redeem your money in the first five years, you will not have any advantage over most products, being subject to a rate of 28%. However, between 5 years and 1 day and 8 years, the rate drops to 22.4%, is for only 11.2% if you keep your money for more than 8 years and 1 day.
Also read: What is capitalization insurance?
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