Czechs between mortgages and savings accounts: a lesson to understand
The average rate on newly granted mortgages has reached the 5% threshold, a full percentage point higher until a year ago. This is a welcome relief for households dealing with their own housing. But at the same time, falling rates mean that savings accounts gradually cease to be attractive. The Czech National Bank has repeatedly cut the two-week repo rate this year, currently at 3.5%. And it is this rate that translates into what interest people on savings accounts get.
(This article does not constitute investment advice and is for informational purposes only.)
A practical example from the family budget
The difference can be shown in a simple scenario. If the Czech household procrastinates 5,000 CZK per month for 20 years, upon savings account with an average valuation of around 3% after tax, it gets roughly to CZK 2.8 million. However, if the same amount were invested, for example, in loans backed by real estate, where yields are 4-5 percentage points higher in the long term, the total amount could rise Over CZK 11 million before taxes.
This is not an exact prediction, but a demonstration of how crucial the yield has over the long term. A difference of several million crowns can decide whether a retired family relies solely on the state pension or maintains its own standard of living.
Real Estate Funds vs. Direct Project Financing
A proportion of households are heading into property trusts as they look for an alternative to banks. However, it is good to know that with funds, the investor pays fees before he starts earning. For the financing model of specific projects, which it offers Investown, the investor begins to collect income from the first month. This is a difference that is noticeable in practice, especially among those who Invest regularly and long term.
Compound interest? Smaller amounts have a big effect
One thing that Czechs often underestimate, and which they should finally learn, is compound interest. Most people imagine under “interest” only that the bank credits them a few percent each year on the amount deposited. But compound interest works differently. Not only the money initially deposited is valued, but also all the returns from past years. This is the power of long-term investing.
For an idea, if someone saves 2,000 CZK a month with an average return of 7% per year, after ten years they have about 345 thousand crowns. Twenty years later, it's over $1 million. And after thirty years more than 2.3 million kronor. In total, he invested “only” 720 thousand. Everything in addition is the work of compound interest.
This effect is still little known in Czech households, yet it determines whether people will have in pension only limited savings, or a stable financial foundation that will allow them to live without unnecessary compromises.
Paradoxically, the current environment is both a challenge and an opportunity. Lower rates open the way to own housing, but at the same time force Czech households to look for alternatives to banking products. And that's where they come into play real estate investment. Stable, understandable and in the long run capable of beating inflation.
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