We learned yesterday that the state will launch a new savings product. He called it Variable Income Treasury Bonds . In this article we will analyze this product a little more and realize if it is a good savings instrument for Portuguese families.
Variable Income Obligations
The new savings products are typical variable yield bonds. That is, they are debt products that make Portuguese families creditor of the State. Through these debt contracts the State undertakes to pay interest on a pre-defined time frame. Being variable yield bonds this means that the interest rate that the State pays will vary depending on an indexer or with market conditions.
What is the Risk of this Investment?
The risk of investing in variable income bonds is divided in two:
- Selling at maturity – In this case, the only risk that the investor runs is the state’s risk of bankruptcy. That is, it is the risk of default or credit risk. We do not yet know whether these obligations would be affected in the event of state bankruptcy (remote but theoretically possible).
- Sale before the deadline – In this case, the investor risks credit (as mentioned above) and market risk. Since it is possible to buy and sell bonds, there is a market price that varies every day. Therefore, it is possible that the price will fluctuate significantly with the typical swings of the financial markets (which need not necessarily be bad).
Investment Amounts of Variable Income Treasury Bonds
The minimum investment amount is € 1,000 and a maximum of € 1 million. In reality, those who have a few tens of thousands of euros may be more interesting to buy bonds directly in the market because interest rates will certainly be higher. However, for small investors these products can become very interesting both in terms of rates of return and in terms of commissioning.
When and where can I buy?
These financial obligations will be transacted at the branches of traditional financial institutions. Eventually also at CTT or at your Postal Bank. This is a downside since banks will not have much incentive to sell these products since they are competing with their deposits or other savings products. Thus, we will have to see the commissions practiced to understand how the banks will be compensated …
What is the Return Rate of Treasury Certificates Variable Income?
These Variable Income Treasury Bonds have maturities of 5 and 10 years and their rates of return will depend on the maturity and yield of the Treasury Bonds traded on the financial markets. As an example, 5-year bonds have a rate close to 1.25% whereas 10-year bonds have a close rate of 2.5%.
At these rates a premium will be added which will depend on market conditions. Maybe it’s wise to consider a premium close to zero?
What’s the Difference of These Products for Treasury Certificates More Savings?
The most treasury savings certificates have a base rate that is fixed and assign a premium according to the evolution of GDP. In fact, if your investment is for 5 years you should opt for the certificates of the savings treasure more because the interest rate is much more interesting in this case, does not pay commissions and the risk is similar. So the issuance of these new certificates is preparing to eliminate the certificates of treasury savings more?
What’s the Difference of these Products for Savings Certificates?
Savings certificates are products that are intended for short-term investment. For longer terms the remaining alternatives are more interesting.
Should I Prefer Treasury Certificates Variable Income or Time Deposits?
Time deposits are short-term savings products. Therefore, the most logical comparison will be between time deposits and savings certificates. For the medium-long term, it should opt for treasury certificates or even for other types of products, such as PPR or Investment Funds.