Fix high interest on Investown while it's time

(This article is NOT financial or investment advice)

The Czech National Bank (CNB) began cutting interest rates in December 2023 after a prolonged period of time, as it gradually approaches the inflation target, which is set at 2% in the long term.  

What does that mean? As well as falling interest on mortgages and other loans, interest on savings accounts and term deposits across banks will also go downwards. Whereas until now, savers on “savers” enjoyed a return of 5-6 per cent per annum, Interest on savings accounts will fall rapidly this year. For example, CSOB, one of the largest Czech banks, recently announced that the base rate on its savings accounts will drop to 1.5% from 6 April 2024.

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Interest will fall. But on Investown, you'll fix a 10% yield so far

In the case of a savings account, one does not have much of a way to influence the appreciation of one's money — as soon as the bank lowers the interest, the “saver” begins to take out less. It usually takes 1 working week to change interest rates into savings account returns to the bank. There can be no talk of fixing a high yield for a long time ahead.

When investing But at Investown, you can easily avoid approaching falling interest rates. So far, projects on our platform still yield around 9.5-10.5% p.a. Since they often have a maturity of several years, this is a great (and one of the last) opportunity to fix a high interest rate for a long time ahead.

The Czech National Bank began cutting interest rates at the end of last year because inflation had slowed. Read more about inflation in 2023 and price growth forecasts for this year at article here. In the EU, by the way, economic performance is expected to grow slower for 2024. There is a good chance that this will continue to negatively affect the performance of the economy in the Czech Republic, which would contribute to an even faster decline in rates.

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Most Investown Partners Won't Refinance Their Loans

“But when interest rates fall, Investown partners will want to earn lower interest and refinance their projects elsewhere. That means I'm going to lose a lot of income. “That thought occurred to you, too? Then we'll calm you down.

Most partners (trading companies that raise money for their projects on Investown) are unlikely to refinance their loan. The reason is simple: refinancing is accompanied by difficult administration, but also high fees and time consuming. The reduction in the interest rate will not be so rapid that it pays for most partners to look elsewhere for a lower interest rate. Let's show it on the exact numbers:

The early repayment fee is 1-3% of the entire loan amount. For disclosure, the partner would pay from 2.5 to 5%, additional money would have to be sacrificed for a new estimate of the property (7-100 thousand CZK). When those costs are added up, it ultimately makes economic sense to let an existing loan run. Moreover, the longer the partner repays the loan, the less profitable it is for him to refinance.

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You can always sell your investment on the secondary Marketplace

Fixing 10% interest for years ahead does not mean that you lose the opportunity to monetize the investment if necessary.

At Investown you have the opportunity to invest at any time to offer to other investors through the secondary market (Marketplace). This means that investments have high liquidity. So if you need your money early, you don't have to wait until the project is due. This is a big difference, for example, compared to term deposits.

Assuming a decrease in interest rates in the Czech Republic, existing projects on Investown (with a yield of 9.5-10.5%) become even more attractive. New opportunities will no longer be able to achieve similar returns.

The notion liquidity in investing refers to the ability to sell your investment quickly and efficiently. If the investment product is highly liquid, this means that the investor can sell the investment almost immediately -- for example, because there are enough buyers in the market.

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The longer the project, the greater the risk? This does not apply

Investors at Investown do not have to worry about fixing high interest over a longer period of time, nor that the risk of partner failure increases with the length of the project.

When choosing partners, we are precise and all the projects we offer for investment, had to meet strict criteria. In addition, partners (developers) plan their projects 6-8 years ahead, these are not random ideas.

Length of projects on Investown significantly shorter compared to the rest of the market. While it is around 31 months in the Czech Republic, the average duration of a development project in the Czech Republic is 8 years, while construction takes another 2 years.

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You can easily diversify at Investown

As is known, the most successful investors invest for a long time, regularly and diversify. We are well aware of that, and so on Investown Diversification is made possible in two ways.

First, you can diversify between different projects, thereby significantly reducing the overall risk. Secondly, the Investown portfolio can also be diversified in terms of the length of investments — for example, you put some of the money into short-term projects and part into medium-term projects.

By maintaining a yield of around 10% p.a. you will perfectly diversify your portfolio and significantly reduce the risks associated with investing your finances.
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This article is not financial or investment advice

Investown does not provide financial and investment advice. This is an informational article related to investment returns. For specific advice, we recommend using the services of a financial or investment advisor.