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COST OF LIVING

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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For members

QUALITY OF LIFE

ANALYSIS: Is the quality of life really that high in Switzerland?

Switzerland, as well as some of its cities, regularly appear in international surveys among the nations with the highest quality of life. Why is this so?

ANALYSIS: Is the quality of life really that high in Switzerland?

In its annual ranking of 85 nations, US News & World Report has placed Switzerland in top position, based on 73 different criteria.

While it did not come up tops in all of the categories, Switzerland did sufficiently well in others to get an overall high score, as well as high scores in several individual categories.

In terms of quality of life, Switzerland ranks fourth, but it got high scores across nearly all the sub-categories. This is where the country ranks best — and not so good.

READ MORE: Switzerland ranked ‘best country’ in the world

Political stability (100 points out of 100)

Nobody can argue that Switzerland merits to get such high marks in this category.

The country has not been involved in any wars, unrests or upheavals in recent history, protected in large part by its neutrality and pacifism.

It is also politically stable from within, with well established democratic processes — such as referendums — providing security against abuses of power.

Economically stable  (100)

Switzerland’s economy has withstood the Covid crisis far better than many other countries, and continues to be strong, partly due to an inflation rate that is far lower than in eurozone nations.

The reason is that Switzerland “combines world class governance with high levels of social capital and high social resilience. It also had strong financial systems, manageable debt levels and good health system resilience”. 

READ MORE: Swiss post-Covid economic recovery ‘fourth best in the world’

Safety

Various surveys have shown that Switzerland is among the top-10 safest countries in the world, and one even rated it the safest in 2022.

This is not to say that there is no crime in Switzerland, but the rate, especially of violent infractions, is relatively low in comparison to other countries.

Even large cities, though more risky than small towns and rural areas, are not crime-ridden.

READ MORE: Switzerland ranked one of the world’s ‘safest countries’

A good job market (92.2)

Switzerland’s unemployment rate has been lower than in many other countries for decades, and it recovered quicker than others from the slowdown that occurred during the pandemic.

Currently, the unemployment is 2.1 percent, versus 6.6 percent across the EU.

There are now 15.6 percent more job vacancies in most industries than at the same time in 2021.

Family-friendly (85.4)

Parents of small children who are trying to find affordable daycare in Switzerland may disagree with this assessment, as these services are expensive and good facilities may be hard to find.

However, there are plenty plenty of benefits for children and families as well.

According to The Local’s reader survey, Switzerland offers an abundance of outdoor activities, the children are safe — whether playing outside or walking to school — and both good healthcare and education system are a plus as well.

Income equality (85.2)

In this category, Switzerland is in the 5th place in the US News & World Report survey, right after the Scandinavian countries.

While there is data showing that  gender gap exists when it comes to pay, a study by the Federal Statistical Office shows that income distribution (between the highest and lowest earners) is fairer in Switzerland than in many other nations.

Public health system (84.7)

Although very expensive with costs increasing each year, in terms of quality and access to care Switzerland’s system is among the best in the world.

Like much of the European Union, Switzerland has a universal health system. However, The system here is fundamentally different in that it is not tax-based or financed by employers, but rather by individuals themselves.

Everyone must have a basic health insurance coverage and purchase it from one of dozens of private carriers.

The system is generally efficient, has an extensive network of doctors, as well as well-equipped hospitals and clinics.

Patients are free to choose their own doctor and usually have unlimited access to specialists. Waiting lists for medical treatments are relatively short.

READ MORE: How is Swiss healthcare system different from the rest of Europe?

Public education system

Switzerland has 12 publicly funded universities (10 cantonal universities and two federal institutes of technology), and a number of public Universities of Applied Sciences.

According to The QS World University Rankings, “Switzerland has the “third best university system in the world”.

The country also excels in vocational training —a three-year, dual-track programme that includes two days in a vocational school and three days getting an on-the-job training in their chosen sector (the so-called apprenticeships).

It includes a variety of fields such as business and commercial, administration, retail, tourism, construction, information technology, arts, wellness services, as well as various trades — in all, 230 professions.

This programme  “enjoys very strong support from Swiss employers, who credit it with being a major contributor to the continuing vitality and strength of the Swiss economy”

READ MORE: Why is vocational training so popular in Switzerland and how much can I earn?

These aspects all contribute to the high score Switzerland obtained for its quality of living.

Not great for affordability

However, there is one negative category in the ranking as well, and it is not difficult to guess what it is: affordability, in which Switzerland’s score is…2.7.

It comes as no surprise to anyone living here (and a shock to tourists and new arrivals) that Switzerland’s cost of living is among the highest in the world, and especially in the country’s two largest cities, Zurich and Geneva.

Everything from food and clothing to housing and public transportation is more expensive than in the EU, with the exception of electronics and lower taxes.

However, there is also another way to look at this phenomenon: that Swiss salaries, which are higher here than in the eurozone, and low inflation rate, offset the prices.

READ MORE: Do wages in Switzerland make up for the high cost of living?
 
 
 

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