Whole books are written about inflation, but very briefly:
Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year [1]
This means that with the franc you have today, you can buy less tomorrow (and even less next year).
What does this mean for my rental deposit?
In Switzerland, you’re likely a tenant for quite a long time. That means you have a rental deposit for many years. Maybe it’s not always for the same landlord because you move apartments every once in a while, but there are always a few thousand francs blocked in a “Sperrkonto” account.
For many years (until 2023, where interest rates have risen again), these accounts paid out little to no interest (often 0 - 0.3%).
So, what does this mean for the purchasing power of the deposited money? Let's make an example:
- Rental deposit of 4'000 CHF
- Deposited in 2010
- Annual inflation of 1.8%
- Deposited in a 0% interest account
This means that in July 2023, these 4,000 CHF from 2010 only have a purchasing power of 3,159 CHF! [2] (Not to mention the loss of value due to possible account maintenance fees that you have paid during this period).
If you really want to get into it and calculate the above example with the real inflation figures of Switzerland, you can use the calculator of the Swiss government [3]. Careful: here the numbers are reversed: this calculator gives you how much you need in 2023 to have the same purchasing power as in 2010. That means, if you enter the original 4,000 CHF and the start and end date, the calculator will give you back 4,197 CHF. That means you need 4,197 CHF in July 2023 to have the same purchasing power as with 4,000 CHF in January 2010.
What can I do about it?
In order for your money not to lose purchasing power, you should invest it in a way that it earns at enough through returns or interest, to compensate for inflation (and account fees). That is, you should look for a financial product / account that gives you as much profit for as little cost as possible. But beware: all investment products that have a possibility of profit, also have a possibility of experiencing losses. (An exception are savings accounts, at least during normal economic times. Here you usually get a relatively low guaranteed gain (interest). A “Sperrkonto” is a type of savings account).
Since everyone has different needs, our goal is to provide as many different products as possible in the marketplace.
Look carefully at the terms and conditions of each product before you choose one for your rental deposit, so you know what the opportunities and risks (and costs) are!
By the way, what is the difference between returns and interest? Very roughly speaking for an account holder, interest is a profit (or cost) that is pre-defined (e.g. in a contract) and therefore certain. An example is a savings account with 1% interest per year, which means that at the end of the year you get paid out 1% of the deposited money. Returns are profits that can only be calculated at the end of the period and usually fluctuate from period to period. An example is a fund that "in an average year" achieves 3-5% return (profit), but you only know at the end of the year how much it was (and sometimes it is more or less than announced).[4]
Does a rental deposit insurance help against inflation?
The deposit insurance is a guarantee issued to your landlord for the amount of the deposit. That is, the deposit insurance provider guarantees to landlord the cost of damages caused by the tenant up to the deposit amount.
For this "guarantee" you normally pay a fee of 4.5 - 5% of the rental deposit amount per year.
The deposit insurance is not an insurance that covers the costs in case of damage, but a guarantee for landlord that the money will be available. The annual fees are for this guarantee and are not deducted from the amount of the possible damage. After the deposit insurance provider has paid out the damage amount to the landlord, they will contact you and claim the same amount back from you. So, you pay the damage costs to the "insurance" provider instead of to landlord.
And to clear up a last common misconception: a deposit insurance is not a loan. You never get the deposit amount paid out by the provider.
Is such a deposit guarantee worth it? Each tenant must answer this question themselves, it depends very much on the personal circumstances. By the way: if there are damages to the apartment when you move out, don't forget to ask your homeowner's insurance if any of the costs are covered!
And what does that have to do with Zinsli?
We offer a selection of savings accounts, deposit insurance (soon) and alternative products for rental deposits (for example, silver granules).
We at Zinsli, want to offer all tenants a wide choice of accounts and yield products to make more out of their rental deposits. However, since the deposit serves as collateral for the landlord, your landlord determines which products they want to allow for such a security deposit. As such, it is possible that you can only choose from a permitted subset of products from Zinsli's full range.
We hope that the platform will facilitate the communication in regards to rental deposit between you and your landlord, and that you will find a product on Zinsli that makes rental deposits all of a sudden a thing of interest!
Do you have any questions about this article or our platform? Then contact us at hey@zinsli.com
If you want to read more about inflation in Switzerland, here are a few resources:
- https://www.srf.ch/news/wirtschaft/teuerung-in-der-schweiz-inflation-sinkt-im-juni-unter-zwei-prozent
- https://de.statista.com/statistik/daten/studie/289222/umfrage/inflationsrate-in-der-schweiz-nach-monaten/
References
[2] https://www.123-pensionierung.ch/
