I have just short of € 15,000 in a savings account with 0.03 % interest – do I have better options?

Question

I am 21 years old, am in college and have a savings account with nearly € 15,000. As I understand it, inflation devalues money at about 2 % a year while the interest rate of my savings account is only 0.03 % annually. This doesn't seem like a very desirable situation.

I know very little about finances so I have no clue what other options might be available to me.

Is there a way I can get a better rate than 0.03 % annually?

Some notes which might be relevant in answering my question:

• I am not looking to "beat the market" or "make money" – I was just wondering whether I have any more appealing options than 0.03 % annual interest.
• Not that I habitually do this, but in case of an expense exceeding my monthly budget it would like to have the option to withdraw a few hundred euros (up to, say, € 600) from what is currently in my savings account.
• I do not expect smooth sailing financially after graduating (I am in a, let's say, financially challenging field) so, although I hope not, I might need a substantial part of the money in a few years (I expect to finish my studies at least 3 years from now).
• I am a risk-averse person. Reading some of the posts on this site I understand some financial strategies bring risks with them. If you want to suggest something that has a risk to it, please explain and justify it very extensively.
• Most of the posts here seem US-minded. Obviously I would prefer advice specific to the Netherlands, but I imagine there are enough general principles applicable to formulate a good answer without in-depth knowledge of the Dutch economy. However, one difference that might be good to mention (considering the large number of posts on this topic I saw on this site), is the fact that here in the Netherlands tuition is a whole lot cheaper than in the US and student loans are a lot less terrifying (all student loans are from the government and currently have 0 % interest).

Answer 1

You can get a better rate of return relatively risk-free by investing in a money market account. An even slightly better rate of return than money market can be had by investing in a short-term bond fund. Neither of those options will keep up with inflation, but at least you'll see some sort of return.

As a young student with years of potential growth ahead of you, I highly recommend investing a portion of this money in a Index fund that tracks the market. In the US, the S&P 500 index is popular for many reasons. There should be a global or European equivalent for you.

Also take advantage of any tax-deferred retirement accounts that may be offered in your country.

Index funds carry risk because the market can and will fluctuate in the short term. Historically and for the long-term, however, they have proven to have a very compelling risk/reward proposition. Your money will not only grow, but exceed inflation, compound, and help create wealth.

Answer 2

For risk-averse people there are 2 easy options in the Netherlands. But both will give you less then 2%.

First is switching to a smaller bank for your saving account. You most likely have one of the 3 big banks. Most smaller banks give more. Searching for 'spaarrente' gives currently LeasePlan Bank at 0,35% which has no bigger risks and taking money anytime is still possible. Other company's like Moneyou and NIBC also have 'kwartaalrekeningen' which give you bonuses for all money which stands 3 months in a row.

The second option is a 'spaardeposito'. It gives more money. The longer is stays with them. But you can not get the money during the time. For 1 year you can get 1%. There is 'only' risk if the deposito is not in euro's(banks from Iceland, Turkey and other east european banks)

*only in the sense like more risk then you currently take. Because every bank can collapse.

Answer 3

Generic (European) answer: For the amount we are talking about here, you can try Bank Hopping. Even though interest rates are consistently incredibly low around Europe, in most countries there are still some banks trying to offer more reasonable interest rates (1% to 3% APR) to new clients in savings accounts or fixed deposits.

The catches are:

• It's only for new clients, which is why you need to "hop" (change banks after approximately 1 year, depending on the offer). In the bigger European countries there are enough banks with those offers, but maybe in the Netherlands (being a somewhat smaller country) you will run out of banks eventually. Cross-border investing is possible, but will complicate your taxes significantly (this is still regulated via bilateral agreements between specific countries, despite all the EU unifications).
• The amount you can invest under the more attractive conditions is usually capped. However, for the quantity we are talking about here this might not be a very serious issue, you can still find offers.
• Sometimes there are additional conditions, like e.g. bringing your salary transfers to the bank or regularly using the Credit/Debit card they provide you.
• Even though there are websites that compare those offers and let you filter/search them according to your needs, you still have to invest some time for every hop, checking the conditions, making sure you meet them and do everything right to qualify for the offers. So you have to put in some legwork.

Btw. there is no such thing as a risk free investment. Even savings accounts and fixed deposits, and even whatever place you have your money in right now, have risks - even though they can be pretty low (at least up to the amount that is government backed).

Answer 4

Although you mention you are risk averse, the reason that the interest rate is so low is intended to push you to think about doing things that give you a higher yield until you are actually taking risks and giving your money to people, in turn creating jobs and keeping the money flowing in the economy, instead of sitting in bank accounts.

They call it the yield curve, lower risk things give a lower return on your money, the opposite being true for higher risk things.

Savings accounts are equivalent to short term revolving low risk bonds.

In the European Union the monetary policy for the whole decade has been to "suppress and depress the yield curve" until even things that were traditionally higher risk are also yielding so little that people look for even HIGHER risk things to invest in, until that level of risk appetite becomes normal in Europe and stimulates growth like in other economies.

(Note, I would have written a comment and much smaller response, but I've been told to write valid answers as answers, even if it doesn't touch on your real question)

So, consider expanding your risk appetite, but otherwise you can shop around to see what banks are offering slightly higher yielding products.

Answer 5

Considering that you dont want exposure to high risks, and that you might need the money in just a few years, I think you should discard anything like stocks, money market funds, and fixed income funds. Even these last two may be in the negative the moment you need the money (just check some money market funds performance in the last few years, most are losing money).

So, as someone else has said, you basically have two options:

• Deposits: they come in several terms, like 1, 2, 5, 10 years. The longer the term, the higher the yield. Usually you cannot redeem the money before the term expires (and beware, rather often the deposit is automatically renewed unless you tell the bank not to renew it a few weeks in advance).
• Saving accounts: you can redeem the money anytime you want. Yield will be lower than deposits.

Unfortunately I am not from the Netherlands, so I cannot refer to any particular deposit or account. However, you should be able to find some by searching in Google. You could even open a deposit in another EU country. Many banks have offers prepared for any European. However it is, please, make sure that your deposit or account is covered by a EU deposit guarantee scheme, that is, if the bank fails the ECB will send you the money you had deposited in the bank up to a certain amount (the bank should provide you the details of the coverage).

As a reference, a couple of months ago Banco Atlantico, in Portugal, offered a 5Y deposit with a 1,9% annual interest, and it was included in the guarantee scheme of the ECB (up to 100.000€).

Good luck!

Answer 6

It's unlikely that you'll have better options, but you might have other options which all have pros and cons, including some which may yield more (even much more) than 0.03% (but could also have more cons). With any financial decision, you have to look at risk and reward.

0.03% is a very poor return. You get 4.5 EUR after the first year, slightly more than that in subsequent years. Total of about 14 EUR by graduation. If you can let it sit for 20 years, you get 90 EUR out of it. This is so little it's not even worth the bother. The real benefit you get is that your money is safer in the bank than under your mattress, and the government probably insures it - but you get the same benefit with any old checking account.

To get a bigger return, the smallest step is to look for a certificate of deposit or an annuity. You can ask your bank about this, or other major banks, or a financial advisor if you have one. Both amount to paying a big sum up-front, and then receiving guaranteed monthly or yearly interest payments that will be more than 0.03% (often 1-3%). Unlike giving a regular loan, delinquency is virtually a non-issue, because 15k is a comparatively tiny sum and your client (a bank or financial corporation) is reputable and huge. The main drawback is that you will either not be able to withdraw the money whenever you want, or doing so will lead to forfeiting your interest payments.

However, since you anticipate needing only a small part of this money (600 EUR), you can do what most people do and reserve part of this for an "emergency fund", and invest only say 13k.

If you want more return than the above options, you generally have to accept more or less risk of losing a significant chunk of your money. Stocks, real estate, bonds, businesses all have a risk of not only losing some or even all of your money, but even ending up still owing money after you've lost everything.