Are there alternatives to savings accounts?

This is the question that many individuals saving money are asking. The question is worth asking, but the answer is delicate. Have you never heard people on the street, or your old uncle say that money is "no longer worth anything"?

Obviously, you heard it. Savings accounts with exceptions like the French “Livret A”, the Belgian savings account (i.e. by law at 0,11%) is zero. And again, zero is a gift, the financiers know it. The current pandemic will not help the scepticism of savers. The paradox observed is that the lower the rates, the more savings increase, in order to compensate for the losses or the shortfall for reserves at the time of pension. This type of common behaviour, although rational even complexifies the bank problems and tough situation. Failing anything else and at the risk of losing on the stock market, the prudent saver favours the savings account. All of the major central banks, e.g. Australian, British and American, have cut their key rates. In Europe, the room for manoeuvre is limited, although real. One could imagine an even more negative jump around -0.85% according to experts. I remembered some of my peers, last year, even couple of months ago, claiming that rates will soon peak up. Of course, it won’t be the case. We must be realistic and expect years of low and even negative rates and not only in the EURO zone. Indeed, the aging of the population, slower economic growth, digital transformation and its consequences, etc.. plead for a new paradigm and a new level of normalization. We will not be revisiting the double-digit rates of the past anytime soon, for those older who remember. When I was young, I remember an ad from Crédit Lyonnais offering 9% on your saving account. It was the good old days would have said my grand-daddy. It's over. The range of motion will be narrower. We will therefore lose purchasing power in a lasting and considerable way, I fear. The yield curve takes a flattened and even inverted shape. The markets themselves seem to be turned upside down. Life insurance companies have reduced their offers and today guaranteeing the principal is already a positive point. The life of the unsophisticated little individual “saver” is decidedly complicated. That of the banks is becoming infinitely more delicate and the financial world will have to adapt to the new "normal" of interest rates. Having money is a luxury these days, as it costs to hold it. Who would ever imagine such a case? It will not be easy. The stock market crisis, consequence of this nasty COVID-19 virus, will not settle the feeling of the public, convinced that the stock market is not the “temple of regrets”, but a real cemetery. Yet what could be more profitable in the long run than stock exchanges? All indices, despite crisis, offer better return on the long run and provided you have a minimum time horizon. There will be better days for the saver… However, I put myself in their shoes and think that it is difficult to explain to them the complex financial context that we encounter, and which is and will remain unique in the annals of world economic history. Let us be pedagogues to explain and popularize finance and justify the current situation. Let’s also be aware that this current health (followed by a financial) crisis will be in our economic book and lectured at Universities. Professors will have to add chapters to their economic syllabuses to describe likely one of the toughest crises ever and rather new in its shape and also that on liquidities/cash time doesn’t generate value anymore.

Fran?ois Masquelier, SimplyTREASURY