What Is The Difference Between Savings Insurance And Deposit?
Savings Insurance VS Deposit
Fixed-term deposit is one of the best-known and safest bank products to save. But do we really know what savings insurance is? Through this article, we will try to clear any doubts.
Although at first glance the insurance of savings could seem to us a product very similar to a deposit to term, the fact is that they are quite different products.
The emergence of savings insurance has been a relatively recent phenomenon in the area of financial products for savings and investment.
Savings insurance has some superficial features that can make us confuse it with a deposit, however, if we delve into its characteristics with a higher level of analysis, we will see that there are notable differences between the two savings products.
In both products, there is a question: can you obtaining a certain profitability by means to invest money during a concrete period of time. And from here we will find that between deposit and savings insurance the rest are differences.
|Savings insurance VS Deposit|
Let’s see how both products behave in different ways.
1. According to the security and guarantee that they offer
Time deposits are one of the most solid savings and investment products that can be accessed. In order for a bank to offer a deposit in some country, it must have the prior approval of the States Bank in order to start operating.
The case of savings insurance is somewhat more complex. For beginners, a savings insurance is mainly called: insurance.
This seems a no sense, but it is fundamental to understand that the organization that will offer us this type of products will be an insurance company and not a bank (although there may be banks that offer this insurance since they may have some insurance company belonging to their own group).
For this reason, savings insurance is not accountable to the same financial authorities as banking products. Ultimately, the guarantee of a savings insurance depends only on the solvency of the insurance company itself.
Although mentioned like that, the saving insurance should be supervised by the General Directorate of Insurance, which depends on, in turn, the Ministry of Economy and the amount of the investment should be guaranteed by the Insurance Compensation Consortium.
2. Attending to the way of expressing its profitability
The profitability of deposits is measured through Annual Equivalent Rate.
An indicator of profitability used as a standard to be able to compare, so in a general way, this is the profitability of financial products with different conditions.
This is the fastest way to know which product that will give you the most profitability in a year.
By this way, the profitability offered is clear.
In the case of savings insurance, another type of indicator which is used is Annual Technical Interest.
This indicator, unlike the Annual Equivalent Rate, does not take into account of expenses and commissions that can originate from the contracting of the saving insurance.
This is especially important since savings insurance is usually linked to the contracting of life insurance, so we must pay attention to the expenses that may originate from this.
On the other hand savings insurance basically requires regular payments as new contributions to the insurance capital.
It is the expenditure of money you should think about when you are planning to save. Because you can not rely on capital you have saved until you use your savings insurance.
3. According to the form in which benefits are taxed
With regard to the taxation of deposits and savings insurance, there are no major differences. In some case it is only taxed on the profits obtained, for examples:
- It is taxed 19.5% for the first 6,000 euros of profits.
- A 21.5% of profits of between more than 6,000 and 50,000 euros.
- A 23.5% from 50,000 euros onwards.
In the case of savings insurance, the taxation tranches are the same but it’s finalized only once at the end of the capital rescue.
4. Depending on the different amounts and terms of the investment
Savings insurance is products that make sense in the long run.
Normally a minimum investment period of 5 to 10 years is required, so we have to count in detail that the profitability offered to you is enough to offset the effect of inflation that will hit real value of your money in a long time term.
By considering the interest rate currently offered, could the savings insurance as an alternative to consider? I raise it to obtain some profitability of those savings that are not expected to be needed in a term of 1 to 3 years.
- Do they require high minimum amounts?
- Do they offer any tax advantages?
- Is there any product more recommendable than others?
- Should attention be paid to a particular aspect when choosing?
- Is there a better alternative?
Savings insurance are insurance policies that are invested in assets (conservatives in debt assets).
They have a lot of difference with the deposits:
- The guarantor is an insurance company, not the bank
- Despite the above, the insurance company has much harder solvency ratios than banks, and there is a consortium in the case of problems with insurers (same as car insurance).
- In issues of profitability, some do give more interest than deposits (the policy is invested in debt that pays good returns).
- Unlike investment funds, if the debt issuer that is invested in the policy is bankrupt, the insurer takes over
- One drawback of these products is that they carry commissions for various concepts
- Also, in some cases, the insurance structure may be somewhat complex: Some of the premium is intended for investment, but another part can go to conventional life insurance, if this is the case, it would be a “lost fund” ( If you do not die)
- Several alternatives are direct debt issuances, solvent debt investment funds, and hedge funds.
In summary, it will tell you that savings life insurance is products that consist of obtaining a determined yield in terms of its duration and amount in exchange for pre-set single or periodic disbursements. Thus, there is no randomness component with respect to the event to be covered, as in life risk insurance.
Of course, before you try this type of investment, you need to read carefully the conditions of the policy and in the case of doubt, you can make the investment through a simple product.