Am rechten Bildrand hält eine Hand eine 20-Franken-Note zwischen Daumen und Zeigefinger. Links im Bild ist das findependent-Logo

Inflation is draining your savings – what can you do?

Name: findependent
Brand: findependent
Rating: 4.9 (94 reviews)

How to counteract currency devaluation by investing your savings.

If you’re wondering how you can best protect your savings from inflation, you’re not alone. Inflation has been back for some time and is making many basic household items significantly more expensive. At one point in April 2022, the inflation rate in Switzerland was the highest it has been in almost 15 years. The purchasing power of your savings is constantly decreasing.

In this blog post, we address the following aspects:

Inflation and salaries in Switzerland
Effects that inflation has on your savings
Alternatives to a savings account
What you should look out for when investing money
Risk considerations
Is now the right time

Inflation and salaries in Switzerland

According to the Federal Statistical Office, inflation measured by the national consumer price index increased by 2.5% in April 2022 compared to the previous year. The reason for this surge in inflation is primarily to be found in the goods that Switzerland has to import. You will probably see the greatest impact of inflation in Switzerland on your heating oil bill (+75%) or at the gas station (+25%). However, less obvious goods such as garden furniture (+14%) and bedroom furniture (+11%) also experienced a strong upward price surge.

In the meantime, inflation has receded slightly. The Swiss National Bank (SNB) wrote in its monetary policy assessment of December 2023: “Uncertainty remains high” and continued “Inflation is expected to increase slightly in the coming months due to higher electricity prices and rents as well as the increase in VAT.”

However, salaries are not experiencing an upward push. At least not across the board. Experts are forecasting inflation compensation of just 0.8% for 2022, the long-term average.

Inflation in Switzerland will therefore ensure that your hard-earned and saved money in your private and savings accounts is gradually devalued. As a result, you can buy far fewer products/goods with the same amount of Swiss francs than you could a year ago. Inflation is rising and your purchasing power is falling.

Deposits in accounts are a losing proposition

Inflation, and thus the devaluation of money, not only affects the purchasing power, but all assets. As we know, the interest rate on bank accounts has been 0% for many years (not to mention the possible negative interest rates that banks charge the depositors in the worst case scenario). This, together with the inflation in Switzerland, results in a negative real interest rate, which the NZZ am Sonntag recently visualized perfectly. “Saving as a losing proposition” was the headline of the graphic and shows that the real interest rate on savings accounts is as low as it was 40 years ago.

It is highly unlikely that banks will pay interest rates on savings accounts anytime soon. Therefore, you should act now to combat inflation affecting your savings.

Find out more

Investment app instead of savings account

Despite inflation, you should of course always have a liquidity cushion in the form of savings. Depending on your circumstances and the scale of your short and medium-term plans, this cushion should amount to a few months’ salary. Savings accounts have definitely outlived their usefulness as an actual investment instrument/savings instrument. To ensure that you still benefit from the compound interest effect, you can invest your savings on the financial market. With the findependent investment app, you can easily benefit from the long-term growth prospects of the financial markets.

Mobile phone mockup with screen and sticker: findependent 15'000 clients

You don’t need any previous experience. You can start with as little as 500 francs. After that, you can make deposits of any amount. But first we’ll show you everything you need to pay attention to when investing:

These are the three factors you should pay attention to

1) Diversification

Even if there are major concerns about inflation in Switzerland: Buying individual shares is definitely not a good way to start investing. You may like brands such as Apple, Tesla, Logitech or BMW, but for risk considerations you should always invest broadly. By broad or diversified, we mean investing in a whole range of shares rather than just a few. An ETF, an exchange-traded fund, is best suited for this. It tracks the respective stock market index and allows you to participate in the performance of the overall market easily and cost-effectively.

How an ETF works

An ETF is an exchange-traded fund that tracks an index, for example the Swiss Performance Index (SPI).

Many different companies are represented in an index; in the example of the SPI, almost all Swiss stock corporations listed on the stock exchange are represented.

Ein Geldsack in der Mitte symbolisiert die gesammelten Gelder von Anleger:innen, welche dann in ETFs investiert werden. Ein ETF ist ein Indexfonds und bildet den Index ab. So investierst du breit diversifiziert

This means that your money is diversified when you buy an ETF. Diversification is one of the most important principles when investing. It protects you from unnecessary risks. If you were to buy a single share and that company went bankrupt, you would lose all your invested capital. It can be ruled out with a probability bordering on certainty that all the companies in an index will go bankrupt, rendering the ETF worthless.

For income in the form of dividends (for equities) and interest income (for bonds), there are two options: Distribution or reinvestment.
Instead of the income being transferred to your account, it remains invested in the ETF.

Distributing ETFs pay out interest and dividends
Accumulating ETFs reinvest the income

2) Investment horizon

Think carefully about how long you can do without the money you are about to invest. If you plan to use the money to buy a house or go on vacation in the next two years, you should not invest it in shares but add it to your liquidity cushion described above.

Money that you are not planning on using for the next 5 years or more can be invested in a findependent investment solution to combat inflation. We explain how this works in detail here.

It is particularly important that you let your money work for you in the long run so that you can balance out fluctuations. The longer your money is invested, the greater the probability that you will not realize any loss, or in other words: the smaller the risk. This bar chart visualizes this impressively. With an investment period of 10 years, the probability is already 97%.

The figures in the chart are based on any investment date in the last 30 years.

3) Fees

People often pay little to no attention to the costs of financial products. This probably has something to do with the fact that a fee of 1.something% is seen as a rather small figure. Over time, however, this accumulates to a substantial difference in returns. However, it is also clear that not everything can be free.

Therefore, we have put together an example of a calculation that compares the fees charged by findependent with the usual costs at banks and shows the effects on long-term asset growth.

Fee comparison:

classic

bank product

findependent
investment app

Annual management & custody fee
in percent

1.37%

0.44%

Annual management & custody fee
in CHF
(for an investment amount of CHF 25,000)

CHF 342.50

CHF 101.20

Note: With findependent, you invest the first CHF 2,000 free of charge.
The figures for the classic bank product are based on a broad-based analysis by the online comparison portal Moneyland from fall 2021.

With an investment sum of CHF 25,000 over an investment horizon of 10 years, the return advantage of the findependent investment solution accumulates to CHF 3,485.

Download findependent

If you want to calculate the benefits of a findependent investment solutions yourself and see how you can counter inflation, use our compound interest calculator:

Investment term

Start amount

Monthly deposit

Investment solution

Your advantage with findependent* CHF 0

* We calculate with 0.5% interest on the savings account and for the forecasts the past performance based on index data, minus management fee, custody fee and ETF costs since 2005 is used (net return). It is not a guarantee for the future market performance. The actual asset value achieved may differ significantly from the forecasts.

Assessing the risks

Nothing happens without risk, but without risk nothing happens. Beim Anlegen -um den Einfluss der Inflation auf dein Erspartes einzudämmen- ist äusserst wichtig, dass du dir deiner Sache sicher bist und nur Anlagen tätigst, mit denen du nachts auch noch gut schlafen kannst. Bedenke aber auch, dass das Bunkern von Geld auf dem Sparkonto und die damit einhergehende Geldentwertung ebenfalls ein Risiko darstellt.

When investing – in order to limit the impact of inflation on your savings – it is extremely important that you are sure of yourself and only make investments that you can sleep well with at night. But also bear in mind that stashing money in your savings account and the associated devaluation also represent a risk.

Here a quote from André Kostolany, a luminary in the investment business: “Buy shares, take sleeping pills and stop looking at them. After many years you will see: You are rich.”

Shares as protection against inflation?

In times of inflation, shares can be a good protection against the devaluation of your savings. This is especially true if inflation rates are no higher than 5% per year according to a study from August 2021. Inflation in limited quantities gives companies the opportunity to adjust the prices of their products and services. On the other hand, inflation reduces companies’ debts.

DThe study also concludes that international diversification is an important aspect. “US equities, for instance, achieve +6% and +9% real annualized return in UK and Japan inflation periods”, the authors write.

However, equities do not offer perfect protection against inflation. Nevertheless, you can counteract the devaluation of your savings in your savings account.

Is now the right time to invest?

Geopolitical uncertainties are omnipresent and once a crisis has (seemingly) been overcome, the next challenge arrives. None of us are fortune tellers and gazing into a crystal ball rarely brings the desired enlightenment. Predicting the level of inflation in Switzerland and developments on the financial markets with absolute certainty is simply impossible. We don’t pretend that we can. Instead, we are guided by the insights gained from long-term data.

If you invest regularly (instead of all at once), you benefit from a smoothing effect, also known as the cost averaging effect. For example, if you pay CHF 5,000 into your findependent account every quarter, you buy fewer shares when prices are high and more shares when prices are low. This smooths out the average purchase price. We explain this in more detail in this blog post.

For the sake of completeness, we would like to mention here that there are also empirical studies that show that it is always better to pay in the full amount immediately. We believe this too. However, it is important to note that these studies assume that you as an investor will always keep yourself composed, even if a temporary market drop causes an unrealized loss of any amount (i.e. -40% or more) in the week following your investment.

If you have strong nerves, you can deposit everything at once. If you prefer the option that is easier on your nerves, you should invest in regular steps over a limited time horizon, not over several years.

Conclusion

Holding excessive account balances is no longer an option due to inflation and currency devaluation
Invest your medium and long-term available assets
Pay attention to diversification, investment horizon and fees
Choose a simple, transparent and inexpensive solution, no complicated things
Don’t put it off, start today

Ready? Ready!