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How to get 50% interest on your savings – and where is the catch?
The Challenge: Now, after years of low interest rates in the major currencies, how do you still get 50% interest on your savings? Of course, you can buy Turkish Lira and accept 10% plus carry trade risk, or buy crypto currencies, or trade CFDs, or even trade CFDs on crypto currencies, but how do we do it without taking risk of high fluctuations?
Solution: Savings Plan “S”
Many German banks have been offering savings plans called “special”, “bonus”, “premium”, “S” and the like to retail clients in the 1990 and the first decade. The investor would commit to paying a monthly amount of e.g. EUR 25 into a savings account and receive market interest rate less a bank margin plus a bonus of x% in subsequent years for the amount paid in the respective year. An example is presented in Table 1.
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year
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3
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4
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5
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6
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7
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8
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9
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10
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11
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12
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13
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14
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15
|
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bonus
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2%
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4%
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6%
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8%
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10%
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15%
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20%
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25%
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30%
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35%
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40%
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45%
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50%
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Table 1: Example Bonus Rates for a Savings Plan
This means that if the investor keeps paying his monthly amount for 15 years or more, the she will receive 50% additional bonus on these 12 monthly payments, so if she saves EUR 300 in year 15, she will receive a bonus of EUR 150 for that year, plus the general market interest rate, which is currently around zero, so negligible compared to the bonus, and the show will repeat in all subsequent years. So the best thing to do nowadays is that you should have started such a plan 20 years ago. And note that this is scalable, i.e. one could also agree to save EUR 1000 per month rather than just EUR 25, which would generate EUR 6000 free cash every year (before tax).
This is not a joke. There are thousands of such legacy contracts still alive, and obviously banks find it expensive and are seeking legal ways to terminate the contracts, mainly by arguing that it is just too expensive.
Investors on the other hand have been struggling with the base interest rate, which lacked transparency in the past. Recently the federal financial court in Germany came up with a judgment that the investors have to be given a transparent reference interest rate. In the past banks have used their own internal interest rate and investors would have to accept it. Now, after the judgment, we expect many such contracts to be re-evaluated.
With possible upcoming inflation, next time banks offer savings plans like the above, I will make sure I sign up for one. The catch is obviously, that now it is either too late or too early. I might go to a bank and ask for an average of two contracts of 20 years ago and one in 20 years. And my daughter would realize that Daddy again is thinking too mathematical, which parts of the rest of the world are not yet entirely ready for.
Prof. Dr. Uwe Wystup
Founder & Managing Director of MathFinance AG
References in the German media:
- Zinsanpassungsklausel unwirksam! Und jetzt …? – https://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Fachartikel/2020/fa_bj_2002_Zinsanpassungsklausel.html
- Verbraucherzentrale: Zinsklauseln in Sparverträgen rechtswidrig – https://www.verbraucherzentrale.de/wissen/geld-versicherungen/sparen-und-anlegen/zinsklauseln-in-sparvertraegen-rechtswidrig-so-kommen-sie-zu-ihrem-geld-22232
Upcoming Events:
ACI Financial Markets Association 2021 World Congress in Dubai, as part of the Expo 2020 (running a year late just as the football world cup).
17 – 20 November 2021, including a Two-Day Course on FX Options and Applications on 16-17 November 2021 with Prof. Uwe Wystup, who will also be part of the world congress.
https://www.acicadubai.com/
Save the date: MathFinance Conference in Frankfurt (Dates TBC)
Our confirmed speakers include:
- Dr. Blanka Nora Horvath
- Dr. Josef Teichmann
- Dr. Peter Tankov
- Dr. Wolfgang Eholzer
- Dr. Adil Reghai
- Dr. Nathalie Packham
- Dr. Karel in’t Hout
Some of the highlights:
- How to successfully invest in crypto currencies without risk
- What’s happening with Derivatives Trading on Exchanges
- How to make money with algo-trading
- Volatility surfaces revisited
- Special Streams on Machine Learning, ESG and numerical methods
London Financial Studies will run the next course on FX Exotic Options with Prof. Uwe Wystup
on 11-13 April 2022: https://www.londonfs.com/course/FX-Exotic-Options
Master Class Webinar : The New Frontiers of Factor Investing with QuantZ founder Milind Sharma & Opalesque
Thursday, November 18th 11am ET
Secure your spot: https://www.opalesque.com/webinar/#uw1
Recognizing that Quantamental has become the final frontier in investing, concepts like RORO (risk on, risk off) Regimes, Smart Betas and ML driven Alphas are defining the new frontiers of Factor Investing.
At the same time, the factor woes of 2020 prove need for better timing, which has always been a key focus of QuantZ. Based on 25 years of experience in quantitative investing and a mission to democratize access to hedge fund alphas, the company is a global market leader in Quantamental signal generation. QuantZ’s signals are based on an extensive factor library of over 600 factors and are used by trillion-dollar asset managers as well as prominent hedge fund pods.
This Master Class, led by QuantZ founder Milind Sharma, is a hands-on introduction and walk-through of today’s state-of-the-art quant techniques. We will also cover how RORO regime-based Factor Investing outperformed during the 2020 Covid crash and how such Smart Betas can be combined to outperform popular strategies such as Q+GARP, Q+Val, Val+Mo, Qual+Mo etc., as well as powerful hedge fund signals. We will also touch on the Great Factor Rotation of 2021 & Q1 Gamestop histrionics – going well beyond the basic Fama-French constructs:
- The compression & commoditization of alpha
- Traditional stock-picking vs ML Enhanced Smart Betas (ESBs)
- ESB characteristics — How QuantZ’s 18 ESBs (which combine 600+ factors into ML enhanced cohorts) have outperformed naïve factors
- How to express any view on Equities via a spanning set of ESBs
- Quantamental signal generation: Off the shelf vs. Customized signals
- Hedge Fund in a Box – From signal spreads to fully optimized HF portfolios
- Sector rotation with QMIT signals
- RORO regime detection via ML & the classification of ESBs
- From RORO regimes to a Universal Crash Factor
- Case Study: Shorts from the Fabulous 14 signal vs. Cathy Wood’s Top 10
You will be able to tune in to this webinar from any computer, tablet, or smartphone. The webinar will be recorded – in case you are not able to join, all registered participants will be provided a link to replay the webinar.
Milind Sharma
Founder & CEO of QuantZ
Milind Sharma is Founder & CEO of QuantZ. His 25 years of market experience span running prop desks at RBC & Deutsche Bank (Saba unit) as well as hedge funds (QuantZ) & mutual funds (MLIM) + the QMIT fintech. His funds have won many awards over the years including those from Morningstar, Lipper, WSJ, Battle of the Quants & BattleFin. He was also a co-founder of Quant Strategies at MLIM (now BlackRock) & Manager of the Risk Analytics and Research Group at Ernst & Young where he was co-architect of Raven TM.
Milind’s publications have appeared in the Journal of Investment Management, Risk, Elsevier, World Scientific, Wiley etc. His educational background includes Oxford, Vassar, Carnegie Mellon & Wharton. He has also lectured, presented and/ or taught Capstone courses at Columbia, Carnegie Mellon, Courant, Georgia Tech, Johns Hopkins, NYU Tandon, UCSD, UCLA etc. He is founder of the quant society QWAFAxNEW (formerly QWAFAFEW).
qwafa is back to cyber format – Petter Kolm/ Gordon Ritter etc. coming up next in case you want to log in for free: https://qwafaxnew.org/events-schedule/
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