Among the various forms of savings investment proposed to consumers, we have bank bonds: how can you choose the best ones?
Savvy savers look around asking themselves how to invest their money in a safe and possibly profitable way.
Banks, a bit like the post office, exploit the relationship of trust they have with customers (especially those of local caliber) to often place products whose net yield is lower than what the market offers.
Attention, I have said it many times: when it comes to yield I am not referring only to the promised interest rate but to the net gain that is calculated by subtracting the implicit and explicit costs of the investment.
If this is your first time on My Business, I invite you to read the sections dedicated to finance and deposit accounts. More generally, then, the introductory article on bond investments could be useful.
Are you looking for safe and secure investments? My free guide might be for you.
Best bank bonds: how to choose consciously
Let’s start with a very straightforward premise: in my opinion, bank bonds are by no means a safe investment comparable to government BTPs.
Although state bonds are exposed to the risk of our country’s default, in fact, we can say that this risk is much more remote than the failure of a bank which, on the other hand, is far from impossible.
Furthermore, the recent regulatory reforms have provided for a new European regulation of bank cracks: the so-called bail-in allows, in fact, internal bailout by withdrawing from savers. Ask the savers of Banca Marche and Banca Etruria: the drama they are experiencing must be an example of what can happen.
The new mechanism, implemented in Italy by the Renzi government, allows the Bank of Italy to pay any expense deriving from a default first of all to the shareholders and then to the various creditors, such as bondholders or those who hold rich deposits (as well as the 100 thousand euros).
This basically serves to prevent some crafty guy from cracking down with a banking institution and to pay the state and the community.
Beyond what you think, therefore, on the new forecast, what matters to you as a saver is the identification of a useful criterion to decide how to choose the best and most solid bank.
But let’s go deeper.
As mentioned, the danger is limited to a situation of bankruptcy and default of the bank. As anticipated, this is a rare situation, just think of the case of the MPS bonds and the MPS bank, which had the support of the State.
In other words, even if the bank fails, it will first begin to collect all the credits it has, then sells all its assets (real estate, equipment, etc.), in order to be able to pay employees, creditors, and also bondholders.
Warning: not all bondholders have the same value. Just think that senior bondholders are paid earlier than Upper II holders. We also note that, in the event of a shortage of money, the bonds may only be partially redeemed.
The safest bonds are the guaranteed ones. In any case, to consider the risks, the image that I extracted from the well-known portal RISKCALCULATED.it which ranks the main Italian institutions on the basis of a value called Common Equity Tier 1 may be useful.
To understand this, it is an index that compares the ordinary paid-up capital (CET 1) and the risk-weighted assets. The European Central Bank believes that CET 1 should be at least 8%.
Always making use of what Calculated Risk says, there are two other criteria to consider: the performance of the individual bank’s share compared to the sector in general (if all banks are doing well and yours is bad, something will mean) and the news regarding the institute (inquiries, scandals and the like).
Having said that, I have provided the essential information to understand whether or not it is safe to buy bank bonds from this or that institution.