At the end of July, there were 82.7 billion euros of customer deposits in the vaults of Portuguese banks. The data was released by Banco de Portugal (BdP) and represents the highest value ever, up 7.2% compared to the same month in 2021.
The amount that can lead the Portuguese to make a decision: to pay off debts associated with a loan, namely housing, or to invest in financial investments. But before you make a decision, do some math, because it’s not always easy to choose the best solution.
Between amortization and investment, the consumer can always save either through the interest he stops paying on the loan or through the income from the investment. Of course, in the first place in the analysis should be the profile of the family and what they value most: whether it is reducing expenses when paying off a mortgage or personal loan, whether it is the security of future times.
In the case of mortgages, given the low interest rates currently practiced, in most cases it is not worth paying, especially if the spread is very low – a common situation for loans taken up to five or six years ago.
In this case, the money will do more good if it is invested in a risk-free application, but then the challenge is to find the product with the best rate of return (see column on the side). However, if the Euribor rises, depreciation may be the best option. In the case of a personal loan, it is almost always preferable to amortize it due to the high interest rates involved.
How to compare rates The first golden rule is to compare interest rates on a loan and an investment product annually, as the situation can change in a short time.
The formula is simple: analyze the interest rate applied to the loan – TAN (index rate plus spread) – and also take into account the rate of the application you are about to file, TANL (net nominal annual rate). To better understand this analysis, consider the TAN of a loan as the cost you incur for the loan and TANL as the return on investment. Knowing the two rates, choose amortization if TAN is higher than TANL, since the savings realized in interest payable on the loan will be greater than the return on investment.
If you have a fixed rate mortgage, in principle you don’t have to worry about rate fluctuations as a result of the Euribor hike, making comparisons easier. However, keep in mind that in this case, the fee for early repayment is higher: 2% compared to 0.5% for floating rate loans.
If you repay part of the debt, it must match the payment due date. If the reimbursement is motivated by death, unemployment or business travel, it is exempt from commissions. Banks may not charge additional fees or increase the penalty to the maximum on contracts that provide for a lower percentage or exemption. And these rules apply to new and old contracts, for the purchase, construction and work in own and permanent housing, resale or lease and acquisition of land to build your own home.
Indeed, with a partial repayment of 20,000 euros, the commission cannot exceed 100 euros for a loan with a variable rate and 400 euros for a loan with a fixed rate. You have up to seven working days to inform the bank by registered mail with acknowledgment of receipt.
However, if you have an adjustable rate mortgage with a spread of up to 2.5%, then you can invest in a risk-free application (see column on the side), capitalizing on interest to increase income. In the case of a personal loan, amortization is almost always the best alternative.
Risk free investment products
Annual returns of 3%, 4% or even 5% on guaranteed capital and low-risk savings products are a thing of the past. The interest currently charged is at a low level and there are banks that no longer pay out term deposits. However, look at the alternatives.
If the simplicity of this savings product is one of its strengths, then the reward rate offered makes the app less and less attractive. Although it has been losing followers in recent years, it is still one of the favorite savings instruments of the Portuguese.
Consumers’ low monthly income, competition from other savings products, and reward cuts explain this downward trend.
This product, which in previous years was considered a real alternative to savings, is increasingly losing ground due to the low rate of return. It is calculated based on the three-month average Euribor observed over the previous ten business days plus 1%. But expect small rewards.
Treasury Growth Savings Certificates
The interest rate increases: 0.75% (gross interest) is paid in the first and second years, which rises to 1.05% in the third year, 1.35% in the fourth, 1.65% in the fifth and 1.95% in the fifth year. sixth, to reach 2.25% last year. From the 2nd year, the interest rate increases by a premium, depending on the real average growth of the gross domestic product (GDP).
1. Consider the unexpected
Monetize added value. Before investing, consider whether you really need this money. If you come to the conclusion that you don’t need it, you can start using that extra money to make the best use of it. Don’t forget that you should set aside three to six months of money for household expenses so that you can deal with any unforeseen circumstances. This applies, for example, to health care costs.
2. Investments for the long term
Stock market. Always think long term, especially if you are thinking about betting on the stock market. The explanation is simple: the more time you spend on your investments, the more you can risk and the more you can monetize. You should invest for at least five years – ten years is good, 20 years is even better so that the amount invested in stocks is maximum and can minimize temporary losses.
3. Don’t invest everything in the same
Diversify your investments. Not putting all your eggs in one basket is one of the golden rules you should follow when thinking about investing. This means that you do not have to own only one security or securities of companies whose profits depend on a similar business. In the event of a change in the legal regime, your assets may undergo profound changes.
4. Don’t bet on something you don’t understand.
Information. If you don’t understand the product a company is selling, don’t buy stock. If you want to invest in government debt but don’t understand how Treasury bonds work, buy savings certificates. If you do not understand the description of the investment policy in the fund’s prospectus, do not subscribe. If the term deposit offered to you has an interest rate formula, exchange it for a deposit with a simple interest rate.
5. Don’t go into debt
Compare offers. It is a mortal sin for an investor to finance himself in order to invest. If your investment depreciates, the loan has a loss multiplier effect. If your investment grows, the loan will absorb the effect of profits. Whatever the outcome, investment loans never work. Only one entity always wins: the bank, regardless of whether the investor wins or loses.
6. Consider your profile
Take a risk or not. If you have a conservative profile, the investor intends to keep the amount invested and choose low-risk products. If you are moderate, you are already ready to take significant risks in investments and your choice, for example, in real estate funds. If he is dynamic, he takes on high risk in stock decisions and bets.