The different types of investment offered by the banking system – Part 1
After the mattress the deposit account is the simplest, most immediate and liquid tool for the saver.
In general, compared to the average return on other low-risk investments, the current account has a return that we could call offensive. Often, indeed, in times of market where rates are very low, the yield of the current account is close to zero, so not at all convenient. Sometimes, it can also be negative because it is absorbed by the periodic expenses imposed by the bank (for withdrawals, debit cards, various services).
Why are they so low?
These close to zero lending rates are justified by bankers and banks as an inevitable consequence of the very low rates on the interbank market.
It is a pity, however, that an almost total drop in lending rates is not followed, with the same strength and speed, by a drop in deposit rates, maximum overdraft charges, rates on mortgages and consumer loans. Taxation on lending interest is 20%, which means that 1/5 of what your capital produces if the state takes it.
In the face of this little or no interest, there is, at the very least, a commitment to give guarantees on the money deposited in current accounts, at least up to the amount of €100,000. For this guarantee to be active, however, the bank in question must join a fund set up specifically for this purpose.
BOT – The ordinary Treasury Bond is an uncouponed, short-term (3.6 or 12 months) bond with a maturity of less than 1 year. The yield is the difference between the redemption value (nominal value) and the issue price, which is “below par”, i.e. less than 100.
BTPs – Multi-year Treasury bonds are medium/long-term securities, with a fixed coupon paid
every six months. Unlike BOTs, their price changes with movements in market rates in relation to coupon and duration of the security; the value will rise if rates fall and, vice versa, will fall if rates rise.
CCT – Certificates of Credit of the Treasury (CCT) are floating rate securities with a duration of 7 years and six-monthly coupons, linked to the yield of 6-month BOTs plus a surcharge. But there are also – more recent – the CctEu, indexed to the 6-month Euribor instead of the BOTs.
Multi-year European Inflation Indexed Treasury Bonds (Btp€i) are intended to provide investors with protection against rising price levels. Both the principal repaid on maturity and the coupons paid every six months are revalued on the basis of euro area inflation. However, if the inflation rate in Italy exceeds the average inflation rate for the euro area, the protection for the Italian investor becomes partial. In any case, the Btp€i guarantees the return of the nominal value subscribed, even in the deflationary scenario. If, during the lifetime of the security, prices fall instead of rising, the redemption will never be lower than the nominal value (100). The Btp€i guarantees a constant interest rate in real terms (purchasing power) fixed at the time of issue (real annual coupon rate).
Btp€i maturities are 5, 10, 15 and 30 years and auctions are held monthly. In our country the risk is considered high with realistic chances of bankruptcy; in fact, the rate paid on Btp€i is higher than the average of recent years and higher than that paid by other countries.
Investing today in Italian government bonds is therefore a higher risk, but more profitable than the government bonds of other countries. Germany and France have lower rates, however, against a theoretical reduction in financial risk. To be continued…