Liquidity Management can come in different shapes and forms.

 

It can be near cash or cash deposits with your bank or it can also be part of an investment strategy to provide a certain target income now or in the future, or indeed a financial plan to achieve a desired pension income at retirement. Either way you look
at it, it is vital to maintain the purchasing power of your money. In other words, even with short to medium term money deposits
you need to take into account charges, taxes and inflation with the goal to achieve a “real rate of return."

 

If you don’t, you potentially burn capital!  

 

Let’s have a look at a typical “money on deposit” scenario to make the effect of charges, taxes and inflation more tangible.

 

Assume a money deposit of EUR 250k with an EU bank in a 12 month “Festgeld” account.

 

As of May 2024 the best interest rate offered comes from EM Bank in Lithuania and amounts to 3, 65%. German inflation rate
is equivalent to 2,5% as of May 2024.

 

Any interest is subject to German Abgeltungssteuer plus solidarity tax ( plus possible church tax ) at a minimum of 26,375%
(excluding church tax). There are no charges to run the deposit account.

 

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Below is the calculation:

 

3,65% less taxes at 26,375% = 2,69% (net of taxes)

 

2,69% less inflation at 2,5% = 0,19% (net of taxes and inflation)

 

In summary, you are standing still. You do not lose, but you also do not gain growth on your deposit.

 

Going forward with reducing inflation rates, the interest rate landscape is likely, after a quick rise in 2023, to decline again over
the next years. This in turn means that bank deposit rates will decline also from their current levels. Many “Festgeld” interest
rate offerings are already being adjusted downwards. Whilst we historically assume that money deposits with banks are “save”, we
had to learn during the banking crisis in 2008 that this is not so. Neither are interest rates guaranteed.

 

Often foreign banks tend to offer higher interest rates for fixed term deposits. This looks tempting, but please bear in mind that
the EU bank deposit guarantee scheme only extends to EUR 100k per account. Anything above this amount is potentially at risk. 
So the notion that all bank deposits at any level are save is a fallacy!

 

In Germany some banks are part of the “Bundesverbands deutscher Banken e.V. (BdB)” whose bank members can give added protection beyond the European statutory limit of EUR 100k. You should watch out for that . Otherwise, your money may be at risk!

 

However, effective liquidity management solutions should always provide a real positive net rate of return. After all you want
to grow your money and not burn it.

 

Inspired Invest Consultancy is a wealth management specialist for both short- and long-term investment solutions with a clear focus on protecting and growing capital, so that clients can achieve their financial goals.

 

With regard to short term liquidity management solutions, we offer a broad selection of alternative assets that provide above average fixed interest rates over terms of between 12 months to 2 years with an exceptional risk/return profile. These asset backed solutions offer both regular income or capital growth options.

 

All of these short-term liquidity solutions are fully secured and have an impeccable payout record.

 

If you are looking for highly attractive short term investments, talk to us!  We have the right solution for you.