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Bank or Bond - your call

March 14, 2019

We are often asked for a better alternative than to keep investments tied up in a bank account either offshore or in Spain.

Bank deposits are reasonably secure and relatively simple, if investing through a bank in Spain can ever be relatively straightforward! However returns will not be good, hardly beating inflation in the short term and certainly not setting the world alight.

We all know that banks have failed and although there is a deposit protection scheme in place to the tune of 100,000 Euros there is a risk when the bank can use your deposit monies to lend to other customers.

There are other issues too when holding money in a bank apart from poor returns. If funds are held offshore then there will be a requirement to report the asset on a Modelo 720 declaration. Interest will be taxed whether withdrawn or not and beneficiaries will not be able to receive the proceeds until the asset has been disclosed for succession tax purposes. All in all there doesn’t seem to be a great deal going for a bank deposit.

A straightforward alternative would be to invest in a Spanish Compliant Bond. Now these are provided by insurance companies who work under totally different finance legislation. They don’t lend your money to anyone else to play with; in fact your money is ring-fenced for you and only you. Indeed the insurance company is required to hold an additional amount by way of a solvency margin and EU directives require the assets be used to repay policyholders in the event of a winding up order.

We agree then that investing in a life assurance bond is well worth considering? Let’s add a few extra ingredients into the mix. No tax is paid until a withdrawal is made and tax is only then paid on the growth proportion of the withdrawal. You can never defer tax in this way with a bank deposit.

Not only is tax deferred, but any tax due is paid directly to Hacienda and even better as the bond is Spanish Compliant (be aware that not all bonds are) there is no Modelo 720 declaration required. Add to this the fact that the asset is not Spanish sited and for joint accounts there could be no liability to succession tax on first death, then we start to have an interesting product on our hands.

Of course a bond doesn’t really hold cash deposits so you need an expert adviser to manage the funds inside your investment and the value can fluctuate according to market conditions. However a bond can pay a regular income stream and you can usually access the majority of your capital at anytime.

If only your adviser could discount the entry cost! Wait a minute Fiduciary Wealth are doing what they have always done reducing the initial cost to make this an extremely attractive product.

Interested? Speak to one of our financial planners on 900 102 374 or email enquiries@fiduciarywealth.gi.