15 August 2011
Posted in Property Info

You may be sitting in the UK or here in your Golf del Sur property and have a substantial amount of money in a savings account, enough to keep you until the end of your days. But be careful about how you spread out your savings as it is crucial in terms of protection and compensation against problems with the banks. This is an extremely complex situation and many people could be unaware of the pitfalls.

UK Compensation and Protection

In January 2011 the UK's level of savings compensation was raised to £85,000 in the Financial Services Compensation Scheme (FSCS). This is double for joint accounts.

However you only receive this amount once, no matter how many accounts you hold with a particular bank because the bank´s compensation license only covers the client and not the amount of different accounts they hold. It is therefore best to spread your savings over as many different banks as possible, never holding more than the maximum compensation amount in each.

As a general rule each bank has its own license, even though it may be part of another group. For example you can have an account with National Westminster bank and also RBS (who are the owners of Natwest) and both of your accounts are protected under separate licenses, hence you are protected for the full amount of £170,000.

Building Societies have a completely different set up and savers who have accounts at any merged societies must be aware that these merged societies operate under one license. For example Santander UK have subsidiaries of Abbey, Alliance & Leicester, plus Bradford & Bingley. These all operate under one compensation license.

EU Compensation and Protection

In the EU the rules have been amended and the compensation limit is 100,000 Euros. Here in Spain where we are only concerned about banks and do not have to worry about the complicated building society set up, we are covered by the Fondos de Garantia de Depósitos which has exactly the same rules as the UK in that only the client is covered and not the amount of accounts he/she holds. Once again it is double for joints accounts (i.e. 200,000 Euros).

In Europe we also have a fixed exchange rate that is agreed every five years, so UK savers know precisely how much of their money is protected in pounds sterling. Between 2011 and 2016 it will be £85,000.

Once again you will need to spread your saving between different banks to ensure that you do not lose out and also do not deposit more than the compensation limit of 100,000 Euros.

Home Ownership in Golf del Sur

Now with your savings safely tied up in accounts from different banks you need to decide whether the interest you obtain from these banks on your deposit accounts is better than what you would receive if you purchased a very nice Golf del Sur property with a rental income and then an increased sale price in some 2 to 3 years time, giving you some capital growth.

The average interest earned from a deposit account would be between 1% and 3% (generous higher level) depending upon the type of account and for how long you leave it in that account.

Instead of letting the banks use your money in pursuit of their profits from lending your hard earned cash, why not invest it yourself by purchasing a Golf del Sur property and then renting it out. Even if you assume rentals for only 20 weeks per year (this is very conservative) that will more than cover all your outgoings whilst the property itself will continue to increase in value. With the property market here now at the bottom of its price levels this makes for an excellent investment and even if you only made a 10,000 Euro profit over three years, this is considerably more than you would earn by leaving your money in a deposit account.

Over the last year there has been an increase in investors who are purchasing Golf del Sur properties in the main because of the low prices but also because the earning potential against savings potential is far greater.

Conclusion

Is it better to be safe with your money in a long term deposit account earning even less than the annual cost of living rise, which basically means your money is depreciating? Or do you take a chance and have either a holiday home or a second Golf del Sur property? As well as increasing your investment over the years with properties rising in price, you are also earning money through a successful rental portfolio. The choice is yours.

This post was provided by the property experts from Homes and Away who have been working for over a decade with clients in the Golf del Sur property market.