When we see a promotion for a three-month 2.75% deposit, it is normal to think that it is a great opportunity. However, if we carefully analyze the characteristics of the deposits and the advantages of the inbestMe Savings Portfolio at 2.35%, the reality is that the latter will generally be a more profitable, flexible and tax-efficient option. Let’s see why.
A three-month 2.75% deposit is a temporary offer. But what happens when it ends?
A promotional interest rate: what happens after three months?
- We don’t know if we will be able to renew at the same interest rate or if the bank will offer us a much lower rate.
- We will have to constantly look for new options and transfer our money. This will mean that for a few days, our capital will not be generating returns.
- Meanwhile, the inbestMe Savings Portfolio offers a always competitive return, adjusted to the interest rates of the central banks, without the need to constantly renew.
Although we cannot guarantee what the exact future profitability will be, the Savings Portfolio is always among the best options available, because it is not a temporary promotion, and because it is linked to the evolution of central bank interest rates.
Taxation: the power of compound interest
Deposits generate periodic interest (normally monthly, quarterly or annually depending on the deposit chosen) and 19% of taxes are immediately withheld from each accrual, reducing the amount of money that continues to generate profits.
On the other hand, in the inbestMe Savings Portfolio, as it is an investment in money market funds, there is no tax withheld until the time of reimbursement, which allows the capital to grow with the effect of compound interest.
10-year impact example
If we invest €100,000 in a deposit at 2.75%, 19% is withheld in taxes each month and, after 10 years, we would have €122,275. This is assuming that the promotional interest rate is maintained (quite unlikely).
With the Savings Portfolio at 2.35% without withholdings until the end, the effect of compound interest would make the investment grow to €126,461, surpassing the deposit despite having a lower nominal rate.
Further down in the appendix we show other examples.
Compound interest is an advantage that in the long term more than compensates for a difference in initial profitability.
Of course, the savings portfolio is not exempt from taxes, but it does benefit from the transferability of the funds that make it up, as we will see in the next point.
Transferability: more tax efficiency and flexibility
Deposits are not transferable. As we saw in the previous point, taxes are paid periodically on a deposit. If the accrual is at the end and we want to change our investment to another deposit or fund, we will have to liquidate the deposit and pay taxes on the interest generated.
On the other hand, in the inbestMe Savings Portfolio the money is invested in transferable money market funds, which means that we can move our money between funds without paying taxes until the time of its reimbursement. This gives much more flexibility to optimize taxation.
Availability without penalties
In a deposit, if we want to withdraw the money early, we can lose all the interest generated or even be subject to a penalty.
In the Savings Portfolio, the money is always available and we can withdraw it at any time without restrictions or penalties and in 2/3 days (the time it takes to liquidate the fund and transfer) it will be available in your current account. It is excellent for part or all of your emergency fund, or to make money that we want to have available profitable without risk.
Diversification: less risk, more stability
A traditional deposit depends on a single bank. If that bank lowers its interest rate or has financial problems, our investment is affected.
On the other hand, the Savings Portfolio invests in two diversified money market funds, and as we saw, the money is distributed in hundreds of positions, which minimizes the impact of any problem in a specific entity.
Security: triple protection
The inbestMe Savings Portfolio can be considered to have a higher level of security thanks to:
✅ Being off-balance sheet: it is not on the balance sheet of any bank. Your funds are in a segregated securities account in your name.
✅ Diversification: as we saw, the money is distributed in hundreds of positions making a negative impact impossible.
✅ Protection from the FOGAIN (Investment Guarantee Fund in Spain), which covers up to €100,000 per investor in the event of the intermediary’s bankruptcy.
It is true that deposits are also covered by the Deposit Guarantee Fund (FGD) up to €100,000 per bank, but the combination of the three points above means that the Savings Portfolio has triple protection that makes it more robust.
Savings Portfolio: a more profitable, flexible and efficient option
If we are looking for an investment with sustained profitability, flexibility and tax advantages, the inbestMe Savings Portfolio is a clearly superior option to a three-month promotional deposit.
✅ You avoid constantly hunting for the “best promotion”.
✅ You take advantage of compound interest and pay taxes only when you withdraw, not before.
✅ You have liquidity without penalties.
✅ You can transfer the money without tax costs.
✅ You enjoy triple protection.
Don’t get carried away by just a flashy number. The important thing is not the nominal interest rate of a temporary bank promotion, but how much money you will really have at the end of the road, the flexibility and the security.
The savings portfolio is excellent for making all or part of our emergency fund or safety cushion profitable. Its nominal interest may not occasionally exceed a bank promotion, but it will always be among the best options without the need to constantly look for new offers. In addition, its tax advantages are unmatched.
If you have a longer or more defined horizon, you can opt for our Target Portfolios, where you can set a target cumulative return of up to 10% (2.6% IRR), depending on the target date.
If your objective is to preserve capital without such a defined horizon, our Bond Portfolios may also be a good option.
ANNEX: OTHER EXAMPLES
Examples of impact at different maturities:
3-month deposit with taxation at the end:
If we invest €100,000 in a 2.75% deposit with a duration of three months, at the end of the period we would have €100,000 x (2.75%/12 months) X 3 months = €100,688. Less the 19% tax on the profit, we are left with a net amount of €100,557.
In the inbestMe € Savings Portfolio with a 2.35% IRR, we would have €100,000 x (2.35%/12 months) X 3 months = €100,588. That is, we would keep more money, which would also continue to earn returns in the following days.
Linking 3-month deposits for a year vs. Savings Portfolio for one year:
It should be noted that if we wanted to do this exercise of renewing deposits for a year, the difference would be more favorable for the Savings Portfolio (as long as you don’t have to sell the securities), since although in a theoretical exercise, we could find other deposits with the same profitability and conditions, a few days could pass between the liquidation of the previous deposit and the transfer of it from one entity to another. During those days, our money would be giving 0%. Even in an “ideal” and also theoretical scenario, in which the same entity renews the deposit after the liquidation of the previous one and its corresponding taxation, the yield would not be composed of the entire accumulated amount, since they have taken money from us when paying the tax on the profit.
That is, for the second deposit, we would contribute €100,557 x (2.75%/12 months) X 3 months = €101,248. Less 19% tax on profit, we have a net of €101,117.
For the third deposit, we would contribute €101,117 x (2.75%/12 months) X 3 months = €101,812. Less 19% tax on profit, we have a net of €101,680.
For the fourth deposit, we would contribute €101,680 x (2.75%/12 months) X 3 months = €102,379. Less 19% tax on profit, we have a net of €102,246.
The initial €100,000 in the inbestMe Savings Portfolio would have a final result of €102,350. You can keep it in your portfolio, deferring taxation, or transfer all or part of the amount to another type of portfolio, also taking advantage of the opportunity to defer taxation on transfer.
