Are you looking for the highest interest on savings? Then the only question is whether you have arrived at the right article.
Because sure, looking for the highest interest rate on savings is a good idea. But what if I told you there is better option?
And by better I mean:
- And with a higher interest rate than on savings (any)
And I’m just sharing this better option with you right away.
And I hear you thinking…
What are government bonds?
A government bond is a type of debt-based investment where money is loaned to a government at an agreed upon interest rate.
If you invest in government bonds, you lend your money to a country for a certain period of time. At the end of that period, that country will pay back your money. And in the meantime you will receive an interest payment from that country.
Why government bonds are so safe? Because the only risk is that the country you lend your money to goes bankrupt.
For some countries, that risk can be quite high. Consider, for example, Greece.
And for some countries that risk is rather small. Can you – even if you have no knowledge at all – think of a country in which you have quite a bit of confidence?
What you would lend your money to because you believe that country will not go bankrupt?
For example, if you’re like most people, you think of countries like:
And rightly so.
Because if these countries were to go bankrupt, we would all – worldwide – have a very big problem.
We can therefore say that investing in such government bonds is virtually risk-free .
So super safe.
And may I ask you one more question?
Which risk is greater, do you think?
That countries like Germany or the United States go bankrupt?
Or that a random bank goes bankrupt?
Something is wrong with the savings rate
If you are looking for the highest interest on savings , you will soon end up at all kinds of foreign banks that often offer a high interest rate (to lure customers).
In itself it is safe to store your money at a bank up to an amount of € 100,000.
After all, this €100,000 is covered by De Nederlandsche Bank.
But you know what’s weird?
You will not be compensated for the risk you run.
I’ll explain how that works and it’s actually very simple.
A very old wisdom is that you get more return if you run more risk.
The most famous example is investing in stocks. That always involves risks.
But the return is also higher in the long term.
Now imagine that you have savings above an amount of € 100,000. Then you run the risk that – if a bank goes bankrupt – your money above € 100,000 is also gone (as happened in 2008 during the credit crisis, for example).
And I mean: gone.
If the risk of a bank going bankrupt is greater than that of a country going bankrupt, then you want to be compensated for that higher risk, right?
Then you should receive a higher interest rate from a bank than if you lend your money to a country such as Germany?
The curve is that savings interest rates in 2023 are much lower than interest payments on government bonds, while the risk on your savings (above € 100,000) is much higher!
Compared to large banks, it saves no less than 2.5% (in 2023) in favor of government bonds!
While government bonds also tend to be much more resilient than other types of investments, as their prices are not affected by market fluctuations or economic downturns.
Why investing in government bonds is better than saving
When it comes to investing your money, government bonds are a much better option than looking for the highest interest rates on savings .
Safe country government bonds are considered very low risk investments due to their stability and predictability.
This means that while you won’t see huge returns right away, you can rest easy knowing that your money is safe over time.
And I mean really safe because the chance that a country like Germany or the United States goes bankrupt is really small. Much, much smaller if a bank goes bankrupt.
Depending on your situation, it can be interesting to invest in a mix of short-term and long-term government bonds, so that part of the money is not fixed for too long (read: a few months) and part of the money has a possibly higher remuneration in the medium term (up to approximately 4 to 5 years).
You could even limit the risk even further by spreading over different types of government bonds.
The highest interest on savings?
Is that still what you’re looking for? I’m just asking just to be sure.
Because investing in government bonds is simply less risky than saving, as crazy as that may sound.
In fact, it will provide you with financial security for months or even years to come without worrying about market fluctuations or unexpected losses of your investment.
Moreover, you also receive a higher interest payment.
Government bonds yield a higher return over time than traditional savings accounts and also offer more security because they are backed by the governments that issue them.
So are you looking for the highest interest on savings ? Then investing in government bonds might be just what you need!
As contradictory as that sounds.
Thank you for reading.
Owner and wealth planner Beyond Numbers