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How to protect your savings against inflation in Switzerland

Switzerland is not insulated from the waves of inflation sweeping the world. Here’s how you can protect your savings.

A five franc coin is put into a shiny piggy bank
Inflation can erode your savings. Here's how to beat it in Switzerland. Photo: Pixabay

The world is being hit by waves of inflation, with countries across the globe seeing a rise in the inflation rate in recent months. 

Besides the impact of prices rising and things becoming more costly, the long-term impact of inflation is an erosion of the value of your savings. 

While the rate in Switzerland is less severe, inflation in October 2021 was the highest in three years. 

Here’s what you need to know about inflation in Switzerland – and how to protect your savings. 

What is the global situation? 

While the inflation rate in Switzerland is a concern, it is far better than in many other countries. 

Inflation is particularly high in the United States, where the country reached 6.2 percent from a year ago on November 10th, which is the biggest 12-month jump since 1990. 

In Europe, inflation rates cross the 2 percent mark in the summer of 2021. 

In neighbouring Germany, which shares Switzerland’s pathological fear of inflation, the rate is currently at 4.3 percent. 

What is the situation in Switzerland? 

Switzerland’s stable and robust economy has generally been resistant to inflation, particularly when compared with other wealthy countries. 

READ MORE: How can you save on your household energy bills in Switzerland?

That said, inflation is on the rise – and there are fears it could get worse. 

In summer, the Swiss State Secretariat for Economic Affairs warned that “a strong development in [consumer] demand could go hand in hand with capacity bottlenecks and have an inflationary effect.”

In October 2021, Switzerland’s inflation rate rose by 0.3 percent to 1.2 percent, notes the Federal Statistical Office. This is the highest figure since August 2018 and the equal highest monthly increase at any time over the past decade. 

Since the end of 2020, there has been a cumulative rise in inflation of 1.6 percent. 

The Swiss National Bank, which is tasked with ensuring price stability in Switzerland, seeks to ensure that inflation doesn’t rise about two percent per year. 

A major consequence of higher inflation elsewhere is that the value of the franc rises. 

In fact, the Swiss National Bank said in November that the rising value of the franc, rather than inflation, was at present the primary concern. 

While a strong franc may be beneficial in terms of purchasing power from abroad, it can harm Swiss exports by making them more expensive to buy from abroad. 

Why is inflation on the rise? 

As with pretty much everything over the past two years, the pandemic is at least partially to blame. 

Government spending as a consequence of the pandemic is a major factor underpinning inflationary trends, Matthias Geissbühler, economist and investment manager at Raiffeisen Switzerland, told Swiss news outlet SRF. 

The shutdown of economic activity last year led to an effective freeze in prices, or in some cases a retreat. Now, as economic activity reboots, prices are beginning to catch up. 

The European Central Bank (ECB) states that the current high inflation is a temporary effect of the pandemic. 

Lockdowns caused bottlenecks in global supply chains, leading to an imbalance in supply and demand. 

Countries have also been forced to borrow large amounts of money, with debt giving rise to larger inflation rates. 

While the worldwide vaccination campaign has allowed a reopening of the economy, concerns around variants has meant that uncertainty is still prevalent in Switzerland. 

Christian Gattiker, the chief strategist at Bank Julius Baer, said uncertainty made it difficult to determine the extent of the current situation. 

“We have never had such inaccurate and uncertain data in the last 30 years. It is probably a historically unprecedented situation,” he told SRF. 

What does this mean for Switzerland? 

Fortunately for Swiss residents, inflation is comparatively minimal, with economists predicting it is unlikely to rise above the dreaded 2 percent mark anytime soon. 

Economist Thomas Jordan told the NZZ the franc remains a safe haven currency and as long as it remains strong, imports will remain cheap – which removes pressure on inflation. 

As Switzerland relies on imports much more than many countries, including the United States and Germany, lower costs of imports has a cooling effect on inflation. 

Geissbühler says Switzerland remains “in an absolutely comfortable position” when it comes to inflation. 

That said, with the ongoing impact of the pandemic uncertain, there are some tried and tested measures to avoid the negative impacts of inflation. 

Savings accounts

Switzerland’s aversion to debt is not only seen at a governmental level, with the average Swiss reluctant to spend more than they earn. 

Historically, the Swiss have been willing to stash their cash in the nation’s famous banks. 

EXPLAINED: Which banks are best for foreigners in Switzerland?

However, inflationary fears and other financial trends have meant that few Swiss banks pay out any meaningful interest on savings. 

In effect, this means that your money continues to lose value, as the inflation rate is higher than the interest rate.

While as we illustrated above this is less severe in Switzerland than abroad, putting your money somewhere where it loses value does not make much sense from an investment perspective. 

Gold

One alternative option for investing your savings is buying gold. In times of financial uncertainty, the value of gold can rise.

A study by the Goethe University in Frankfurt concluded that gold historically offers the best value as an investment during times of inflation. Generally, investors tend to park their money in the precious metal due to the fact that it can’t be replicated, unlike money.

But investing in gold comes with ancillary costs such as storage.

Experts also warn that the price of gold is volatile. Last year it rose to a record high of over 2,000 dollars per ounce before dropping down to less than 1,800 dollars today.

“Gold is volatile – prices fluctuate over the long term in much the same way as those of stocks,” Andreas Hackethal, Professor of Finance at Goethe University Frankfurt, told the Süddeutsche Zeitung.

Securities and stockmarket

Switzerland’s reputation for stability means it is a good place to invest. 

Stable investments mean you should see a strong, reliable return, although if you want volatility there are plenty of risks to be aware of. 

Fortunately, technology has made it easier, with a number of apps you can use to make and monitor your investments. 

The best option for regular investors – i.e. people for whom investment is not their main source of income – are investment funds. 

These are managed funds which pools together money from other investors. There is little day-to-day work required from the investor, with major investment decisions made by expert fund managers. 

Another option can be to go it alone and invest in stocks, which can be higher risk and will involve more work researching, but could be a greater payoff. 

Large and reputable Swiss businesses are often a target for investment, including the banking and insurance sector (Credit Suisse, UBS and Zurich), along with Roche, Nestle and Glencore. 

Real estate

Another investment possibility which will not see your money eroded by inflation is property. 

While Swiss generally prefer to rent rather than own a home for a variety of reasons – Switzerland’s the only country in Europe with a home ownership rate lower than 50 percent – property investment is still a smart strategy. 

READ MORE: Why do so many Swiss prefer to rent rather than buy their own home?

During the first nine months of this year, house prices rose by 6.2 percent, while apartments went up by 5.2 percent, according to RealAdvisor appraisal platform. 

Swiss finance site Comparis notes that costs of apartments rose by up to 97 percent in Zurich from 2007 to 2018, with increases over 75 percent in several other regions. 

However, according to analysis from August 2021 by Swiss financial services firm UBS, property prices in several parts of the country are at risk of overheating. 

The UBS Real Estate Bubble Index said parts of Basel, Lausanne, Luzern, Nidwalden, Ticino, Vaud, Zug and Zurich all were exposed to some additional risk of overheating. 

READ MORE: Can foreigners buy property in Switzerland?

Pensions

While plenty of us would like to pull off a variety of shrewd investments that meant we could quit our job tomorrow and live on a yacht, but when we’re thinking about savings and investments, the focus is generally on having a comfortable retirement. 

One option in that regard is to invest in your own pension fund. 

The more you contribute to your Swiss pension fund, the more you will receive in retirement. 

There are three pillars to the Swiss pension system: old age, occupational and private. The one which works for you will depend on your financial circumstances. 

Check out the following for more information. 

EXPLAINED: How does the Swiss pension system work – and how much will I receive?

What about Bitcoin? 

One further option is to invest money into cryptocurrencies such as Bitcoin, which is not subject to the same inflationary pressure as national currencies. 

However, while cryptocurrencies avoid inflationary pressures in the same manner as national currencies such as the Swiss franc, Switzerland’s Tagblatt notes that they “do suffer from fear of inflation from time to time and they are generally very volatile”. 

As people generally do not use cryptocurrencies for daily purchases, an inflationary increase may not be felt on a day-to-day basis, but the devaluation of the currency – which is effectively what inflation is – will obviously devalue your investment. 

The volatility of cryptocurrencies might also strike fears into the hearts of investors seeking stability, but may appeal to investors who feel the potential payoffs are worth the risk. 

Please keep in mind that this report is intended as a guide only and should not take the place of qualified advice from a financial adviser. Got a question or think of something we should focus on? Get in touch at [email protected] 

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LIVING IN SWITZERLAND

‘A beautiful country’: How Ukrainian refugees see Switzerland

The Local’s Helena Bachmann is hosting two young Ukrainians in her home in Vaud. This is their take on the pros and cons of Swiss life.

'A beautiful country': How Ukrainian refugees see Switzerland

When Nadiia, 23, and her brother Roman, 16, left their home, mom and older brother in the city of Odessa, all they knew about Switzerland was that it was beautiful, clean and safe.

After arriving, they say they were not wrong on that score.

Their first impression when they arrived in mid-April was “amazing views, beautiful towns and villages”, Nadiia recalls.

As they got to know their surroundings in the Lake Geneva region, they made even more discoveries. Roman, for instance, was impressed by the state of Swiss roads and how the narrow ones could accommodate two-way traffic.

He also likes that most roads have bicycle lanes.

One advantage of seeing things with a fresh set of eyes is noticing seemingly trivial things that those of us living here don’t pay attention to and mostly take for granted.

Roman mentioned that there is no difference, in terms of infrastructure, between towns and countryside. How many of us have made this astute observation?

And Nadiia commented on the abundance of fountains that spout clean, drinkable water.

READ MORE: Ten things Geneva residents take for granted

Last but not least, and unlike many other foreigners who find the Swiss aloof, Nadiia and Roman’s experience has been the opposite.

All the people they’ve met so far have been “nice, friendly, kind, and helping us integrate”, Nadiia said.

Bottles, paper, batteries

Among their most surprising discoveries (aside from the ones mentioned above) was Switzerland’s recycling system.

Coming from a country where “everything is stuffed together in a bag and thrown into trash” — as Roman described his nation’s approach to recycling — the Swiss way of disposing of waste was a real eye-opener.

The two took to the new ‘recycling culture’ quickly and willingly, hauling household garbage to nearby bins and separating paper, cardboard, plastic and glass bottles, organic waste, and Nespresso coffee capsules more assiduously than we do.

Roman and Nadiia are equal to the (recycling) task. Photo: Helena Bachmann/The Local

“Easier life”

Both siblings like to cook, which we embraced with enthusiasm and gratitude.

We have been the lucky recipients of Ukrainian specialties such as borstch (a beet-based soup), as well as pelmeni and vareniki — round or crescent-shaped dumplings stuffed with ground meat or potatoes, respectively.

Needless to say — and that is a rare thing in our house — everything is made from scratch: beets, cabbage and carrots for the borstch are grated by hand, and the dough is made and kneaded manually as well.

When I pointed out that all the ingredients — such as grated beets and dough can be purchased pre-made, and that people in Switzerland usually don’t spend so much time in the kitchen, the two conceded that life here “is easier” as there are fewer domestic chores to do, but they still prefer the traditional, more laborious way of food preparation.

Prices and bureaucracy

In their six weeks here, the two have noticed some negative aspects of Swiss life as well.

The biggest shock — as is the case for most new arrivals — are the prices.

EXPLAINED: Why is Switzerland so expensive?

On the day after they arrived in Vaud, Roman was stunned that a loaf of bread we bought cost 3 francs, while the same one sells for the equivalent of 50 cents in Ukraine. Cost of other consumer goods has been a shock as well, though they now begin to grasp that Ukrainian prices and wages can’t be extrapolated into Swiss ones.

Another thing the siblings don’t like so much is that shops close by 6:30 pm on most days, after which time there is not much to do, especially in the small town where we live.

Nadiia also mentioned how slow the Swiss bureaucracy is.

While the two received their status S — which allows them and other Ukrainian refugees to stay in Switzerland for a year — relatively quickly, the cantonal procedures related to integration and French language courses take much longer.

Switzerland’s special ‘S permit’ visa program: What Ukrainians need to know

However, they understand this slowness is due to the large number of Ukrainians that are currently here — more than 3,500 in Vaud as at beginning of May — who have to be processed as well.

The sheer number of people who have sought refuge in the canton in a short period of time is an unprecedented situation for all the services and departments dealing with these refugees, so delays are par for the course.

Oh yes, another important perk…

Among Roman’s personal Swiss-life favourites is the one allowing those over the age of 16 to drink some alcoholic beverages, while the legal drinking age in Ukraine is 18. 

So far he only had one beer, but it’s good to know Switzerland’s charms go well beyond chocolate and edelweiss.

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