Juris Grišins How to invest in short-term and low-risk alternatives to stingy deposits

Unfortunately, at a time when variable mortgage rates are rising rapidly, deposit offers from banks have largely not kept pace with this rise Despite the fact that the three-month Euribor already exceeds 2.

5% per year (in the following article, the data is as of February 15, 2023), the average deposit rate, for example, in the largest Latvian commercial banks is still around 1% per year Such an offer is no longer competitive in the market right now, or in other words, there are much more profitable ways to invest free money with the aim of earning with low risk and short term.

Savings bonds or a loan to Latvia Savings bonds are a simple way to lend money to the state of Latvia and also benefit from it privately On the krajobligacijas.

lv website, you can apply and simply make an investment, starting from 50 euros, and buy savings bonds for 12 months, 5-year or 10-year term On February 14, 2023, the annual loan rate was 3.

4% - noticeably higher than the deposits offered by commercial banks An additional benefit when choosing such an investment is that no personal income tax has to be paid for the interest income, the purchase is commission-free, and you do not even need a securities account.

In addition, it is possible to withdraw money from savings bonds faster, but then all interest calculated on them is lost An alternative to savings bonds - other government short-term bonds An alternative to savings bonds is to buy bonds issued by governments.

For example, German one-year bonds, which might be the safest investment in the euro, are currently yielding 2 6%, but they are not so easy to buy.

A simpler purchase process in the Swedbank internet bank is for bonds issued by Latvia, Estonia and Lithuania, but for a term under one year, the offered return is within 1 5-2% (including bank commissions).

In addition, it should be taken into account that the minimum amount of purchase is 1000 euros Not as good as savings bonds, but better than a current deposit at most banks.

Bonds can also be purchased advantageously through the NASDAQ Baltic stock exchange, but then you also have to calculate brokerage commissions, which would pay off only with a larger investment Unfortunately, the bonds of the Baltic countries have low liquidity - they have few regular buyers and sellers, as a result of which trading with them is unpredictable.

Bonds issued by the German government are more attractive because their liquidity on the stock exchange is much higher Accordingly, this means that they can be bought and sold more easily.

The yield on german short-term bonds is in the range of 2 5-2.

8% interest, from which the broker's costs for the transaction must be deducted (approximately 0, 3% of the purchase amount) Buying such bonds from Baltic banks can be a relatively complicated process that involves calling brokers.

Therefore, I assume that the more personal the bank's service, the easier it is to complete such a transaction However, those familiar with the Interactive Brokers platform have the option of buying German government bonds online.

When buying government bonds, you need to be well-versed in yield calculations, and in general, such an exercise should only be done by an experienced investor Bonds can also be sold at any time if the money is needed sooner, but if the market interest rates have changed or there are not many other buyers in the market (the liquidity of the securities is low), small losses can also occur.

In the case of purchasing bonds, a securities account is required and additional account maintenance expenses must also be calculated (for example securities holding fees) Bond index fund – for good diversification Just as it is recommended to buy not individual stocks, but stock index funds (ETFs), it is the same with bonds.

A bond index fund provides diversification as well as very good liquidity - you can sell your investment at any time of the working day For example, the "iShares € Floating Rate Bond" fund invests in low-risk short-term euro-denominated bonds and their average return is around 3% per year.

The fund trades on both the London (EFRN L) and Berne (EFRN.

BN) stock exchanges An alternative fund is "iShares Ultrashort Bond" (IS3M.

DE or ERNE AS), which also buys short-term European corporate bonds, or "iShares Government Germany 0-1yr" (EXVM), which buys short-term German government bonds.

must be reckoned with that the return of these funds is not fixed and may change according to the market situation A securities account is required for the purchase and it can be done both with the help of Latvian brokers ("Swedbank", "SEB", "Citadele", etc.

) and international brokers ("Interactive Brokers", "Saxo Bank", etc ).

Broker commissions must be paid for buying, selling and holding the fund, according to their price list Buying ETF funds will be significantly cheaper than, for example, buying government bonds.

For larger investments - a deposit in another European Union country If the existing bank offers a low deposit rate, it is worth looking at what it is in other banks, both in Latvia and elsewhere in Europe In all countries of the European Union, deposit guarantees apply to investments of up to 100,000 euros in each of the banks where you will have an account.

Accordingly, if the bank cannot repay the deposit, the state will Deposit rates can differ significantly between banks, but due to the state guarantee - the risk of all deposits is essentially equal.

For example, "Bigbank" offers a 12-month time deposit with a return of 2 5%, while "Swedbank" – 0.

7% You can also find banks outside of Latvia that offer even better conditions.

For example, the Lithuanian "PayRay" bank now offers an annual deposit rate of 3 05%.

Gudriem lv portal gathers part of Latvian banks' offers, while Raisin is a popular deposit platform in Europe.

However, it should be noted that nowadays opening an account in another bank is not an easy task, and it may not pay off in the case of a relatively small amount of investment Those who want 0 risk should keep money in an account There are some banks, payment institutions and brokers, which pays for the money balance in the account.

This fee is usually not high, but still better than nothing For example, "Wise", a payment institution created by Estonian entrepreneurs, but now based in Belgium and England, currently offers 0.

69% (after deduction of income tax) for the balance of money in euro currency In this case, you don't have to do anything, you don't have to pay commissions or anything else - the interest will be credited to your account every month.

In addition, money will be immediately available whenever you need it Swedbank also recently started offering its customers 0.

3% for keeping money in a savings account, which does not involve any operations or commissions But 0 risk also means very low returns.

If, for example, investing EUR 1,000 in savings bonds with an annual rate of 3 4% would earn EUR 34, then at 0.

3% you will earn only EUR 3 per year There is a difference, especially with current inflation.

In general, it is clear that there are alternatives to safe short-term investments and they should be used so that the money in the account does not only guarantee higher profits for commercial banks, but also brings value to the owners of the money themselves The most important thing is to find the most suitable and understandable form of investment for you and start using it.

*The above is my personal opinion and cannot be considered as a recommendation to make or not to make specific investments .