As the year ends, building societies traditionally ramp up their advertising for new contracts. This year is no exception. They lure you with bonuses, double contributions, free new contracts, and extra money if you are an active client of the parent bank. But is it worth it? Does building savings fit into a financial plan?

Don’t sign – that’s the real question here!

In 2024, the state subsidy for building savings was reduced – you now get a maximum of 5% of your deposit, i.e., 1,000CZK (€40) per year. That’s half of what it used to be. And this applies to old contracts as well. Being a state-supported product, it’s subject to political risk, and with a six-year lock-in period, you usually experience two governments – which makes this risk more than minor.

Returns on deposits range between 2% and 3% per year. This might seem interesting, especially since the Czech National Bank reduced its base interest rate to 4% p.a. and plans to continue lowering it.

Those of you with current financial plans have a solid emergency fund covering 3–6 months of expenses. For the rest of your goals, you keep money in savings accounts and mutual funds. And because life changes – and money matters – we use products from which funds can be withdrawn at any time, usually within ten days. That’s why we don’t use building savings in our financial plans.

Building savings are locked in for six years. You can’t just withdraw the money – even if you have four contracts for your children and a half-renovated house you need to move into! (Yes, that really happened to a client.)

Building savings are designed to accumulate a lump sum that you then use all at once – for example, to renovate a child’s room or buy a new car. (Hopefully, your current car will last until the building savings lock-in ends and only then break down.)

If you are still tempted by advertising or your children receive contracts with the first deposit from grandparents under the Christmas tree, what will the returns look like?

That’s a tricky question – and often not found on building society websites.

They lure you with bonuses “up to” certain returns, contracts “with a premium,” “of course” guarantees of “double,” and other slogans. Most often, you’ll find the results displayed as the contract balance after meeting all conditions.

Through complex calculations, we arrive at an annual return of 4.4% p.a. (Raiffeisen building society system). And that’s only by opening the contract in November 2024 and making the last deposit in February 2031, so the calculation includes seven state subsidies…

Well-chosen bond funds are just as safe as building savings.

They’re more flexible for deposits and, especially, withdrawals. They aren’t subject to government whims in changing the terms of already signed contracts. And at this moment, they offer the same or higher returns as new building savings contracts. The further expected cuts in CNB interest rates will make bond funds even more attractive.

For all these reasons, we use bond funds in client planning – and we see no reason to change that.

If you do find new building savings contracts for your children under the Christmas tree from grandparents, give us a call. We’ll know what to do.

Also read: Building Savings or Regular Investing?

Note: Fixed rate used: 1 EUR = 25 CZK.