Avoiding the impact of negative interest rates

17. March 2022

Author: Dani Stüssi

The way out of negative interest rates

For years, central banks around the world have been flooding the markets with cheap money to prop up the economy. As a result, interest rates fell towards zero and safe currencies became increasingly popular. In 2015, the Swiss National Bank (SNB) was forced to introduce a negative interest rate for deposits in order to avoid an even stronger appreciation of the Swiss franc against the euro. In the beginning, it was mainly banks and pension funds that bore the financial brunt. Soon enough, however, large balances of corporate customers and private individuals also started being impacted by the negative rates.

This low interest rate environment is only beneficial for loans. On top of that, borrowers are also betting that at least part of their nominal debt will be eroded by inflation at virtually no cost. However, those who have saved money are being penalized twice. Firstly, their savings account at the bank earns little or no interest, and larger balances, above an exemption amount, are even being charged a negative interest rate of up to 0.75% p.a.. And secondly, inflation is gnawing away at their purchasing power, as the prices of everyday goods are steadily rising. Use our inflation calculator to see how much the loss of purchasing power will affect you personally.

Protection against loss of value due to inflation

How can I avoid negative interest rates at the bank? How can I protect my savings from diminishing purchasing power? Withdrawing the money in cash from the bank and putting it in a safe would avoid the negative interest that would be incurred if it remained in the account, but it does nothing to guard one’s savings against the corrosive impact of inflation. This option also poses obvious security risks related to transport and/or storage.

The better alternative is to invest the money. For this to be effective, it is important that the investments chosen are as safe as possible and allow for easy and fast liquidation. Investment instruments in Swiss francs with a very high degree of security, for example Swiss bonds, have the disadvantage that they currently have no interest yield or even a negative one. Other safe options with a very long investment horizon, such as real estate, offer the prospect of a reasonable return, but they have the disadvantage of being illiquid if the funds are needed quickly.

A popular solution is therefore to invest in real assets in the form of securities, because these appreciate in value and allow investors to retain their purchasing power even in times of high inflation. In this context, investments in precious metals and shares of solid companies stand out as the best options. Also, since there is a risk that a crisis could hit the Swiss banking system hard, it makes sense to keep a large part of the assets in Swiss francs outside the financial system.

How can I reduce dependence on banks?

The RealUnit is a practical and superior alternative to an account at a bank. This investment vehicle is a proven way to preserve the value of assets over the long term. The customers’ capital is invested in real assets such as gold, silver, or shares in companies with strong balance sheets and sustainable earnings. At least half of it is held physically and stored securely outside the banking system in Switzerland. This provides increased security and crisis resistance for investments in Swiss francs and protection against inflation or losses during economic and financial crises. Also, the RealUnit is traded as a share on the BX Swiss. Thus, you can liquidate your position at any time and still avoid negative interest rates at banks.

What are the disadvantages of investing your cash rather keeping it in the bank ? Every investment carries some risk and the fees for a custody account at a bank are somewhat higher compared to a savings account.

A practical and efficient alternative to a bank account

For companies as well as individual savers, the RealUnit is an interesting alternative to bank accounts. In this way, you can avoid negative interest rates and at the same time protect yourself against the loss of purchasing power caused by inflation. In addition, RealUnit investors also become co-owners. Since RealUnit Schweiz AG is an investment company, savers indirectly participate in real assets by purchasing RealUnit in the form of a share or as a digital token.

Image source: Image montage by Beate Zeuner

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