The savings plan: a tool for achieving your financial goals

People who find it more challenging to save can opt for products such as a savings plan

If you want something, it costs you something. Throughout their lives, people have to deal with countless expenses: a computer, a trip, a university degree, a car, a house… While buying a pair of shoes or a cell phone does not usually have a significant impact on personal finances, there are other expenses that, due to their amount, require a savings plan.

People who have received financial education since childhood may have an economic cushion that allows them to meet these expenses. But those who have not been taught saving habits and, therefore, do not usually set aside a small part of their salary for possible eventualities may find it challenging to afford them.

Regardless of the group you belong to, when you have a medium- or long-term spending goal, it is advisable to develop a personalized strategy to deal with it in the best way possible. And the savings plan is an excellent ally to guide people in this mission.

This savings and investment product, popularly known as Savings Plan 5, allows savers to accumulate small amounts of money, which they can dispose of in the future, usually when five years have elapsed.

With the savings plan, it is easy to manage the money and save the desired capital to meet the objectives set. It is contracted through a bank or insurance company, which makes the assets available to a series of specialized managers. These will invest the sum in different investment instruments to make the capital profitable, bearing in mind the conditions and wishes of each investor.

The individual will contribute new amounts of money periodically to get closer to his or her objective. At the end of the term, he will not only enjoy the original sum but also the returns generated by the investment strategy. Undoubtedly, this is one of the great attractions of the savings plan.

The advantages of the savings plan

It is impossible to understand what a savings plan is without mentioning another of its major attractions: the tax benefits of its contracting. The fact is that, unlike the majority of investment products, the interest obtained is exempt from taxes in the income tax return, intending to encourage saving among citizens.

However, a series of requirements must be met for this exemption to be effective. To begin with, the investment cannot be touched during the five years. If the money is withdrawn early, the saver will be obliged to pay 19 % of the interest earned. It is also not possible, for example, to withdraw a percentage early and keep the rest.

In addition, there is a maximum annual limit of 5,000 euros. It does not matter whether they are deposited at once or in installments, but the total amount deposited yearly cannot exceed this figure.

Finally, it should be noted that Order ECC/2316/2015 of November 4 determines that the savings plan is a low-risk financial product. Therefore, individuals enjoy guarantees since the bank or insurance company has to guarantee at least 85% of the original capital once the term ends.

Which savings plan to choose?

There is not just one type of savings plan, but two main types: the Individual Long-Term Savings Account and the Individual Life Insurance or Long-Term Savings. However, they are incompatible if you wish to enjoy the tax advantages, so it is essential to know all the details to choose the most appropriate one.

The Individual Long-Term Savings Account, or CIALP, is contracted through a financial institution. Although there are different contracts, its general operation is very simple: it is enough to open an account in which the initial sum is deposited and to which, subsequently, the profits generated are paid.

Unlike the former, the Individual Life or Long-Term Savings Insurance or SIALP is contracted through an insurance company. Instead of opening a deposit, a life insurance policy is created into which the savings are paid, with the investor acting as both the insured and the beneficiary simultaneously.

Both alternatives are of great value to people seeking long-term returns without turning their backs on security, as the level of risk is relatively low. The choice is left to the saver, who has to review all the conditions in depth to discover which savings plan best suits his or her needs.

The differences with the pension plan

The savings plan is undoubtedly one of the most popular savings products. But it is not the only one. The pension plan, for example, is another of the most frequent alternatives. And in fact, the similarities between the two may cause some people to confuse them.

The pension plan sets a much more distant horizon. In this case, the savings are recovered at the time of retirement, while the savings plan allows the investor to enjoy his capital again after a few years, as it is more oriented to face expenses such as a down payment on a house.

The savings plan is much more flexible since the capital can be withdrawn anytime. Accepting, of course, the loss of tax benefits. But in the pension plan, the money cannot be removed except for certain exceptions, such as early retirement, disability or death.

On the other hand, the ceiling of the savings plan is fixed at 5,000 euros per year. On the other hand, the maximum annual contribution for pension plans is higher, at 8,000 euros.

And what products do each of them invest in? Savings plans tend to invest in fixed income since the return period is shorter. Pension plans, on the other hand, diversify capital over a broader range of assets, thus adapting to all types of profiles, from the most conservative to the riskiest. This, in turn, allows the returns obtained to be higher.

Inverse, another alternative for making savings more profitable

As we have seen above, the savings plan is a product based on the long term. It will take several years before the saver can enjoy the benefits, so it is not advisable for those who seek to multiply their capital more quickly.

For this kind of profile, there are other alternatives with which they can earn money faster. Solutions such as Inversa Invoice Market, an alternative financing platform where it is possible to finance companies' outstanding invoices in exchange for very substantial interest rates.

Inversa users access a variety of companies in the real economy in search of liquidity. They can dive among them, analyzing the level of risk they present, the profitability they promise or the duration of the operation. In short, they know all the conditions in advance, so they can make better decisions.

Many of the operations are concluded after three, two or even one month, making Inversa a very attractive solution for making savings profitable quickly. In addition, some companies offer interest rates of 8%, 9% or 10% - much higher than most investment products.

The security guarantees are robust, as many of the bills are insured. The investor does not have to wait for the maturity date to enjoy the interest, as it is collected as soon as the transaction is closed.

An ideal alternative to a savings plan for those who want to make a quick profit.