Keeping cash safe

Following the collapse of many investment funds, savings and loans, and other financial institutions, people are more concerned about the safety of their investments than about astronomical returns. For some, the name of a renowned financial group suffices, while others want legal insurance for their investments.

The safest methods for depositing money are bank deposits in current accounts and term deposits, as both are insured by law. According to Zdeněk Sluka, the director of consulting firm Sophia Finance, 90% of a client’s deposit is insured (in the event that the bank goes under), but the maximum sum is the equivalent of EUR 25,000. Deposits in savings and loans are also insured by law, but as opposed to banks, it is limited by the amount of assets in the deposit insurance fund to which the institution contributes. Although this fund was nearly empty, the state compensated clients of collapsed savings and loan institutions on the basis of a parliamentary decision. Such a solution need not be repeated in the future. The conditions are the same for insuring building savings accounts as for bank deposits, because, as Sluka explains, every building savings institution is also a bank – as well as the most profitable, low-risk way to save up to CZK 1,500 per month.
Investments in bond and equity funds are not insured. In general investments in securer state bonds carry the lowest risk, while betting on shares in small companies or emerging markets stocks is the riskiest. According to Sluka, an improvement mortgage bond is secured by a real estate lien, but it is otherwise uninsured. Such a bond’s yield is tax exempt. Assets deposited in supplementary pension insurance are not insured either. “This is a very conservative type of pension savings, supported by state contributions and tax breaks. Despite state support, I would recommend such a plan mainly for investors over 40,” says Sluka. “A younger investor can employ less conservative savings methods, probably enjoying better returns.”
There is no such thing as ideally secure investing. Money under the mattress or in a home safe loses value due to inflation, and investments in legally insured deposits are not completely secure – that depends on the financial stability of the state insuring them. “Let us keep the recent situation in Argentina in mind,” Sluka warns.

This article was prepared in cooperation with Sophia Finance, s. r. o.


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