What Is a Savings Plan: How Does It Work?

New savings plans appear daily. That’s why banks never stop promoting new investment opportunities. Most of the time, however, investment decisions affect us because we cannot assess the risks. 

While we’re dealing with different trading platforms, funds, or ETFs, the question usually arises — What is a savings plan, and how does it actually work? Today, you will find out everything you need to know about savings plans. Let’s get started!

What Is a Savings Plan: Definition & Key Pros n Cons

With savings plans, you pay a certain amount of money every month. Only a few years ago, people were still using the good old savings book to keep calm during difficult times. Banks invested the money globally and thus generated returns to pay interest on savings deposits. Today interest rates are so low that most investors prefer models that invest in stocks on a monthly basis.

Key Pros

  • Regular savings
  • No high monthly fees
  • Acceptable risks
  • Multipurpose

Key Cons

  • Risk of losses

Savings plans are used in various fields of application. For example, savings to pay for children’s education or for your own home or apartment. 

How Do Savings Plans Work?

Many providers of savings plans start with a monthly savings rate of $30. In turn, other savings plans, such as funds, start with savings of $60 per month. The fees for saving remain rather low. You can vary the savings rate at any time up to the minimum amount. If you cannot pay the dues in a month, you can freeze the savings plan for a certain period of time.

Of course, there are different types of savings plans. A classic savings plan might still be considered as a monthly payment to a daily money account or a building society loan agreement. However, banks have long since ceased to pay interest on these investments. Contemporary forms have been established since the global financial crisis in 2008.

For example, exchange-traded funds (ETFs) emerged. In many cases a so-called ETFs map share indexes such as the DAX or the American NASDAQ. But you can also invest in certain areas of the economy, such as electromobility or artificial intelligence. Moreover, there are also suitable ETFs for most future technologies. 

What do you guys know about savings plans? If you still have any questions after having read this article, please feel free to ask them in the comments! Have a great weekend!

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