How to afford your child’s wedding
By Danny Newman, Branch Manager – Beit Shemesh, Goldfus Insurance
We all have big plans for the future, which may involve small nest eggs that we hope will grow over the years to fund family events and also provide our families with financial security. When considering saving options, the questions to ask are:
- When will I need to use the money?
- What is the purpose of the savings?
- Do I want the options of withdrawing the money at any time?
- What type of saver am I? A risk taker for higher potential gains or a conservative saver?
- What currency will my future expenses be in?
The above questions need to be answered in order to profile one’s individual needs and to determine how to maximise the return on savings. For most people, the first stop is usually a visit to the local bank to see what savings plans they have available, but many people are not aware of the very attractive alternative investment options that insurance companies can offer.
With the historic rise and fall of the global markets, people are often hesitant to consider investment options outside the “secure” savings plans that the banks provide. However, as we saw with Lehman Brothers in 2008, even major banks are not immune from bankruptcy.
Although it is true that banks offer relatively secure savings plans with a guaranteed return on the base amount deposited, the interest rates linked to those plans are often low or insignificant, and the money may also be inaccessible for a significant period of time, if they are locked in.
When one takes into consideration that the rate of inflation is higher than the fixed interest being offered by the bank, then despite the positive gains in nominal terms, in real terms the investments are actually losing money.
About the banks: Did you know?
According to a recent article (16/09/2013) in the Hebrew edition of Globes Financial Newspaper:
- There is NIS 83.8 Billion sitting in current accounts in Israeli banks which are earning 0% interest.
- As of the beginning of 2013 there is NIS 103 Billion sitting in short term saving accounts in Israeli banks earning very little interest.
- There has been a rise over the last couple of years of approximately 10% per annum of total monies lying dormant in current accounts.
- While this money earns nothing for the account holder, the banks earn hundred of millions of shekel per year on the interest they earn by reinvesting this money.
- Experts in the finance industry relate the current consumer investment apathy to low interest rates and lack of knowledge of alternative investment options.
The investment plans offered by the various insurance companies in conjunction with investment houses are comprised of a number of track options, offering secure tracks such as Government bonds, through to tracks which are heavily share based, and everything in between.
Historically the returns achieved by the investment houses and insurance companies have not only far exceeded the interest rates that the banks offer, but have also outperformed the rates of inflation, giving both nominal and real gains on one’s investment.
An additional advantage to investment options via insurance companies is the freedom to transfer the money between tracks with no penalties or extra fees. Capital gains tax is also only incurred when money is withdrawn from the investments, enabling maximum returns (unlike in the banks).
While the investment tracks do not guarantee a return (past performances do not guarantee future ones), most investment plans have performed particularly well over the past 5 years and in 2013 have continued to perform at a steady and strong pace.
Saving plans through insurance companies and investment houses provide one of the few options to receive significant returns on modest investments, with many companies providing good yields from as little as NIS 150 per month into a child’s saving plan.
By being better informed about your savings options, it is possible to plan for future expenses and smachot, so that when the time comes, you can focus on enjoying them.
For more information about Savings & Investments contact us today!