Independent Financial Advisor and Co-Founder of Affari Miei
22 September 2023
At a time when there is so much talk about BTp e Deposit accounts it becomes natural to ask which of the two hypotheses is more convenient today for those looking for a safe and not particularly risky investment.
In this article we will do an analysis that will help us understand what is best to do and we will focus on the risks and opportunities of both solutions.
This article talks about:
Deposit Accounts: they offer a guarantee of up to 100,000 euros through the Interbank Deposit Protection Fundwhich makes it the ideal instrument for those looking for a low-risk form of investment;
BTP: I am government bonds and therefore considered quite safe, but they do not offer the same guarantee as deposit accounts. They may be influenced by market factors that determine the price on the secondary market.
Deposit Accounts: the return is fixed and agreed upon opening the account;
BTP: the yield is given by the combination of the coupon and the differential between the purchase price and the nominal value reimbursed at maturity. Some issues may have a variable coupon based on certain parameters such as, for example, inflation indexation. An example is given by BTp Italy issued between 2022 and early 2023.
Deposit account: returns are subject to the ordinary tax of 26%, for deposits exceeding €5,000 a stamp duty of 0.20% per year is paid;
BTp: the returns are subject to preferential taxation at 12.50%, to purchase them it is necessary to have access to a securities account on which, for balances exceeding €5,000, you pay the stamp duty equal to 0.20% per year.
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Deposit Accounts: they are generally considered less liquid, especially if tied up. They cannot be resold before maturity without some form of interest penalty. However lately they are coming out more permissive offers under this point of view;
BTP: they are more liquid and flexible because they can be resold before maturity, but the price will depend on the market situation. Consequently, if the market value of the BTP we have in our portfolio drops, we may be forced to sell at a loss if necessary.
Deposit Accounts: tool easily accessible online and ideal for those who want a “set-and-forget” investment;
BTP: require greater knowledge of the market and financial instruments. The purchase can be made online via securities account but, given the complexity of the subject, a greater general knowledge of the markets is recommended before venturing.
Duration of the investment
Deposit Accounts: they offer less variety in terms of length and condition though in recent times Deadlines are getting longer;
BTP: There is a wide range of options, from short-term to long-term bonds, with different coupons and loyalty rewards.
What should you choose?
There are various factors to consider but the first wise consideration to make concerns the nature of the instrument: the deposit account is an instrument designed for the allocation of savings that could be useful in the short term, it is not a real financial investment.
By investing in BTPs, however, we go to the financial markets (MOT), so we are comparing two things which by their nature are extremely different from each other.
The shorter the maturity (e.g. 2-3 years) the more the BTP is suitable for comparison as i risks, anything but trivialhave less impact on such short periods.
To carry out the comparison, it is therefore necessary to identify a precise maturity (e.g. 2-3 years) and compare the gross return of the deposit account with the gross return of the BTp which must be sought on the secondary market. This yield will likely be the sum of the coupons to be received and the difference between the purchase and redemption price.
The gross returns must be made net: in the case of the deposit account we remove 26% from the interest, in the BTP 12.50%.
At this point we will have the net return of both solutions on the same maturity and we will be able to decide which of the two solutions is more convenient.
Additional helpful resources
If you are looking for resources on the topic, here are some articles that may interest you:
If, however, you are trying to start your investment journey in a conscious manner as an independent investor, then I recommend you find out more here:
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