Moving to Poland, you have a lot of things to take care of: Finding a flat, a job, friends, and your own routine.
Once you are settled, you can consider taking care of other priorities, and one of the most common is deciding what to do with your extra money (definitely a good problem to have, by the way!)
As the old saying goes, “When in Rome, do as the Romans do,” and one of the Poles’ most loved products is the “lokata”, or saving account. A lokata allows you to put money in a specific bank account and to get an interest rate in return without risking your capital. You have to keep your money there until a date specified when you sign the contract, and at the end of it you will get your money back plus interest.
Even in the (unlikely) case of a meltdown of the bank where you are having your money, there are reserves and European regulations that will protect your capital 100% up to 100,000 EUR. If you have more money than that, you can still get the same level of protection by spreading it across different bank accounts.
Zero risk; sounds fantastic – but what are the drawbacks?
To begin with, the return is extremely low. Even when you see a 3-4% return, that’s mostly for the short term lokata (1-3 months) and it’s calculated on an annual basis. In plain English, if you put your money in one lokata for three months at a 4% annual rate, you will get a 1% return, minus taxes of course (19% of your gains), for a great total of 0.81% real return. And the longer the lokata lasts, the harder is to get a good return. For a 12-month lokata, you can expect an annual return around 2 or 2.5%, minus taxes.
The second problem is that there are penalties if you have to withdraw money before the end date, and sometimes these penalties are higher than the interest you earned on it. So, you end up losing money.
Knowing all of this, it’s still worth to put money in a lokata?
Earning 1-1.5% is definitely better than nothing, and for some people having money in a lokata that “cannot be touched” is a good way to control their spending, so it can be a good way to start getting familiar with the concept of getting your money working to make more money for you.
The best resource you can use to find out which lokata can be the perfect fit for you is this website. It is all in Polish, and it’s very intuitive, so you should figure things out even if you are not fluent or even use an online translator. It can be the starting point of your research and give you an idea about what different banks are offering.
If you decide to open a lokata, read carefully the contracts and terms of conditions you will have to sign, looking specifically for this information (ask a Polish speaker for help, if you need to):
- Re-check duration and interest date. They are the most important details you need to know, and sometimes a mistake or a typo there can be very costly for you.
- Check what happens if you need to take this money out before the end of the contract. The best lokata you will find will cost you only the interest you could have earned, but give your deposits back in full. The worse ones may ask much more, so be aware of this before signing the contract, and ideally try to get only the first type.
- Check what happens when the lokata is finished. Some contracts have an “automatic renewal” at much worse conditions. Check if that’s the case for the lokata you are signing and what you need to do to avoid them. In some other cases, you will just get your money + interest on your regular bank account – in that case it will be easier to deal with it.
- Choose only “normal” lokata and not “lokata strukturyzowana.” Some banks will try to push you to buy some lokata strukturyzowana, a complicated name to say that the savings account return will be linked to other financial products. For example, if the returns of five specific stocks are going to be higher than 10% in one year, you will get a 6% return, but if not you will get a 0.5%. (I made these numbers up just to explain how it works). The problem with this approach is that the conditions put in the contract are usually very unlikely, so it is quite possibly you will get a very low return. A lokata is a financial instrument that you use to defend your capital from the inflation, not to make money. If that’s your goal when investing, you will need to look at other financial products (especially related to stocks) or real estate, but the level of risk will be higher and you will need to manage it properly.
Hopefully this mini-guide can help you choose the best lokata for you.