How to Check if your Savings and Investments are Safe
Before placing your hard-earned cash in a savings account or investment, you need to know just how safe your money is. Read on for all you need to know.
Whether you’re just looking for a place to earn interest on the money left over at the end of the month, or want to invest an inheritance or windfall, it makes sense to ensure your money will be as safe as possible.
Better returns come with higher risk; however everyone’s risk appetite is different. Banks won’t always offer the products that are right for you. Often they prefer to sell those that are right for them to make more commission.
There’s more info on boosting your savings in our dedicated post.
Choosing a savings or investment product
In Spain the “traffic light” system indicates the safety level of a financial product. Products are classed either by colour or by a number, as follows:
1 – dark green: these are the safest products such as savings accounts and fixed-term deposits
2 – light green: guaranteed products that allow you to recover all your investment in under 3 years
3 – light yellow: products that allow you to recover all your investment within 3 to 5 years
4 – dark yellow: products that allow you to recover all your investment within 5 to 10 years
5 – orange: products that allow you to recover all your investment after 10 years or 90% in under 10 years
6 – red: shares, private equity and some types of bonds. These are the riskiest and you may lose all the money invested.
All financial institutions, including banks and insurance companies, must make the information regarding risk available to the public either in writing or on their website.
For investment funds the risk is based on a scale that goes from 1 to 7. Products ranked number 1 have the lowest risk and 7 the highest. Funds that are particularly risky also include one or two padlock signs. Those that are complex include one or two exclamation marks.
Bear in mind that in all cases it’s the financial institution that will classify the product. Classifications are in accordance with guidelines from the National Securities Commission.
Understanding the Deposit Guarantee Scheme (DGS)
In Spain the DGS guarantees up to 100,000€ per person per entity. This means that if the bank or financial entity fails, depositors will get their money back up to that limit. However, you need to take a few caveats into account.
- Type of financial product
The DGS guarantees current and savings accounts as well as fixed-term deposits. Money in investment funds, shares, pension plans or any product considered to have a certain level of risk is NOT covered.
- The amount is limited by account holder and entity
Up to 100,000€ in an account in one name is protected; for joint accounts up to 200,000€. If you have money in several different accounts with the same entity, any amount over 100,000€ per person will NOT be protected.
As different brands may belong to the same financial group always check before diversifying your savings.
- Not all entities that operate in Spain are protected by the Spanish DGS
For foreign banks that operate in Spain, such as ING, their national DGS offers protection. Check the details on the website for each entity.
- You may have to wait some time to get your money back
If the worst happens, once an entity has suspended business and officially informed the DGS regarding all the deposits held by its clients, the DGS will start to return the money. Although reimbursement should take under 10 days, this period only commences once the DGS has been informed of the situation.
Debts, such as a mortgage or personal loan, may be deducted from the amount you had deposited.
The website for the Spanish DGS is available in English. It includes a list of all credit institutions that currently belong: check the details here.