SHARE
COPY LINK
For members

COST OF LIVING

How to protect your savings against inflation in Switzerland

Switzerland is not insulated from the waves of inflation sweeping the world. Here’s how you can protect your savings.

A five franc coin is put into a shiny piggy bank
Inflation can erode your savings. Here's how to beat it in Switzerland. Photo: Pixabay

The world is being hit by waves of inflation, with countries across the globe seeing a rise in the inflation rate in recent months. 

Besides the impact of prices rising and things becoming more costly, the long-term impact of inflation is an erosion of the value of your savings. 

While the rate in Switzerland is less severe, inflation in October 2021 was the highest in three years. 

Here’s what you need to know about inflation in Switzerland – and how to protect your savings. 

What is the global situation? 

While the inflation rate in Switzerland is a concern, it is far better than in many other countries. 

Inflation is particularly high in the United States, where the country reached 6.2 percent from a year ago on November 10th, which is the biggest 12-month jump since 1990. 

In Europe, inflation rates cross the 2 percent mark in the summer of 2021. 

In neighbouring Germany, which shares Switzerland’s pathological fear of inflation, the rate is currently at 4.3 percent. 

What is the situation in Switzerland? 

Switzerland’s stable and robust economy has generally been resistant to inflation, particularly when compared with other wealthy countries. 

READ MORE: How can you save on your household energy bills in Switzerland?

That said, inflation is on the rise – and there are fears it could get worse. 

In summer, the Swiss State Secretariat for Economic Affairs warned that “a strong development in [consumer] demand could go hand in hand with capacity bottlenecks and have an inflationary effect.”

In October 2021, Switzerland’s inflation rate rose by 0.3 percent to 1.2 percent, notes the Federal Statistical Office. This is the highest figure since August 2018 and the equal highest monthly increase at any time over the past decade. 

Since the end of 2020, there has been a cumulative rise in inflation of 1.6 percent. 

The Swiss National Bank, which is tasked with ensuring price stability in Switzerland, seeks to ensure that inflation doesn’t rise about two percent per year. 

A major consequence of higher inflation elsewhere is that the value of the franc rises. 

In fact, the Swiss National Bank said in November that the rising value of the franc, rather than inflation, was at present the primary concern. 

While a strong franc may be beneficial in terms of purchasing power from abroad, it can harm Swiss exports by making them more expensive to buy from abroad. 

Why is inflation on the rise? 

As with pretty much everything over the past two years, the pandemic is at least partially to blame. 

Government spending as a consequence of the pandemic is a major factor underpinning inflationary trends, Matthias Geissbühler, economist and investment manager at Raiffeisen Switzerland, told Swiss news outlet SRF. 

The shutdown of economic activity last year led to an effective freeze in prices, or in some cases a retreat. Now, as economic activity reboots, prices are beginning to catch up. 

The European Central Bank (ECB) states that the current high inflation is a temporary effect of the pandemic. 

Lockdowns caused bottlenecks in global supply chains, leading to an imbalance in supply and demand. 

Countries have also been forced to borrow large amounts of money, with debt giving rise to larger inflation rates. 

While the worldwide vaccination campaign has allowed a reopening of the economy, concerns around variants has meant that uncertainty is still prevalent in Switzerland. 

Christian Gattiker, the chief strategist at Bank Julius Baer, said uncertainty made it difficult to determine the extent of the current situation. 

“We have never had such inaccurate and uncertain data in the last 30 years. It is probably a historically unprecedented situation,” he told SRF. 

What does this mean for Switzerland? 

Fortunately for Swiss residents, inflation is comparatively minimal, with economists predicting it is unlikely to rise above the dreaded 2 percent mark anytime soon. 

Economist Thomas Jordan told the NZZ the franc remains a safe haven currency and as long as it remains strong, imports will remain cheap – which removes pressure on inflation. 

As Switzerland relies on imports much more than many countries, including the United States and Germany, lower costs of imports has a cooling effect on inflation. 

Geissbühler says Switzerland remains “in an absolutely comfortable position” when it comes to inflation. 

That said, with the ongoing impact of the pandemic uncertain, there are some tried and tested measures to avoid the negative impacts of inflation. 

Savings accounts

Switzerland’s aversion to debt is not only seen at a governmental level, with the average Swiss reluctant to spend more than they earn. 

Historically, the Swiss have been willing to stash their cash in the nation’s famous banks. 

EXPLAINED: Which banks are best for foreigners in Switzerland?

However, inflationary fears and other financial trends have meant that few Swiss banks pay out any meaningful interest on savings. 

In effect, this means that your money continues to lose value, as the inflation rate is higher than the interest rate.

While as we illustrated above this is less severe in Switzerland than abroad, putting your money somewhere where it loses value does not make much sense from an investment perspective. 

Gold

One alternative option for investing your savings is buying gold. In times of financial uncertainty, the value of gold can rise.

A study by the Goethe University in Frankfurt concluded that gold historically offers the best value as an investment during times of inflation. Generally, investors tend to park their money in the precious metal due to the fact that it can’t be replicated, unlike money.

But investing in gold comes with ancillary costs such as storage.

Experts also warn that the price of gold is volatile. Last year it rose to a record high of over 2,000 dollars per ounce before dropping down to less than 1,800 dollars today.

“Gold is volatile – prices fluctuate over the long term in much the same way as those of stocks,” Andreas Hackethal, Professor of Finance at Goethe University Frankfurt, told the Süddeutsche Zeitung.

Securities and stockmarket

Switzerland’s reputation for stability means it is a good place to invest. 

Stable investments mean you should see a strong, reliable return, although if you want volatility there are plenty of risks to be aware of. 

Fortunately, technology has made it easier, with a number of apps you can use to make and monitor your investments. 

The best option for regular investors – i.e. people for whom investment is not their main source of income – are investment funds. 

These are managed funds which pools together money from other investors. There is little day-to-day work required from the investor, with major investment decisions made by expert fund managers. 

Another option can be to go it alone and invest in stocks, which can be higher risk and will involve more work researching, but could be a greater payoff. 

Large and reputable Swiss businesses are often a target for investment, including the banking and insurance sector (Credit Suisse, UBS and Zurich), along with Roche, Nestle and Glencore. 

Real estate

Another investment possibility which will not see your money eroded by inflation is property. 

While Swiss generally prefer to rent rather than own a home for a variety of reasons – Switzerland’s the only country in Europe with a home ownership rate lower than 50 percent – property investment is still a smart strategy. 

READ MORE: Why do so many Swiss prefer to rent rather than buy their own home?

During the first nine months of this year, house prices rose by 6.2 percent, while apartments went up by 5.2 percent, according to RealAdvisor appraisal platform. 

Swiss finance site Comparis notes that costs of apartments rose by up to 97 percent in Zurich from 2007 to 2018, with increases over 75 percent in several other regions. 

However, according to analysis from August 2021 by Swiss financial services firm UBS, property prices in several parts of the country are at risk of overheating. 

The UBS Real Estate Bubble Index said parts of Basel, Lausanne, Luzern, Nidwalden, Ticino, Vaud, Zug and Zurich all were exposed to some additional risk of overheating. 

READ MORE: Can foreigners buy property in Switzerland?

Pensions

While plenty of us would like to pull off a variety of shrewd investments that meant we could quit our job tomorrow and live on a yacht, but when we’re thinking about savings and investments, the focus is generally on having a comfortable retirement. 

One option in that regard is to invest in your own pension fund. 

The more you contribute to your Swiss pension fund, the more you will receive in retirement. 

There are three pillars to the Swiss pension system: old age, occupational and private. The one which works for you will depend on your financial circumstances. 

Check out the following for more information. 

EXPLAINED: How does the Swiss pension system work – and how much will I receive?

What about Bitcoin? 

One further option is to invest money into cryptocurrencies such as Bitcoin, which is not subject to the same inflationary pressure as national currencies. 

However, while cryptocurrencies avoid inflationary pressures in the same manner as national currencies such as the Swiss franc, Switzerland’s Tagblatt notes that they “do suffer from fear of inflation from time to time and they are generally very volatile”. 

As people generally do not use cryptocurrencies for daily purchases, an inflationary increase may not be felt on a day-to-day basis, but the devaluation of the currency – which is effectively what inflation is – will obviously devalue your investment. 

The volatility of cryptocurrencies might also strike fears into the hearts of investors seeking stability, but may appeal to investors who feel the potential payoffs are worth the risk. 

Please keep in mind that this report is intended as a guide only and should not take the place of qualified advice from a financial adviser. Got a question or think of something we should focus on? Get in touch at [email protected] 

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.
For members

COST OF LIVING

EXPLAINED: How inflation is increasing housing costs in Switzerland

Property is not exempt from inflation. Here's how costs are on the rise in Switzerland.

EXPLAINED: How inflation is increasing housing costs in Switzerland

First, the (somewhat) good news: The inflation rate in Switzerland —  2.6 percent  — is significantly lower than in neighbouring France (5.4 percent) and Germany (7.8 percent), as well as throughout much of Europe.

But even with the relatively low inflation, prices of many consumer products have been rising, with economists forecasting further hikes.

READ MORE: Seven products that are becoming more expensive in Switzerland

While you might notice the impacts of inflation when you buy groceries, consumer goods, food and petrol, inflation is also making a mark on the housing market.  

How is the housing market impacted by this phenomenon?

The impact on housing is indirect, which can be likened to the ‘domino effect’ — as the price of construction materials derived from petroleum, such as plastic, have risen, so has the cost of newly built houses and renovation work on existing properties.

Rents and mortgages are also impacted, although there the mechanism may be a bit complex to understand by non-experts. 

As Vincent Leroux, president of SVIT Romandie, the Lausanne-based section of the Swiss Association of Real Estate Economics, explained to Tribune de Genève (TDG), the “central bank have a particular mission to control inflation”.

To do this, it has the option of raising its key rate. When it does, the interest rates of financial institutions follow and rise in turn. The purpose of the maneuver is to reduce the use of credit, and to slow down the level of consumption and the upward trend in supply prices. But, if interest rates go up, rents can go up – as can the interest cost of a mortgage. 

EXPLAINED: How to save on your mortgage in Switzerland

This is the general picture, but what happens if you are a tenant?

All tenants are, or will soon have to, pay higher rents, according to Pierre Stastny, a lawyer at The Swiss Tenants Association (ASLOCA) in Geneva.

The determining factor is when the lease was signed and what the reference rate — weighted average interest rate for mortgages in Switzerland, announced by the Federal Housing Office each quarter — was at the time.

Those who rented their properties at a time when the reference interest rate was low could see their rents increase by 3 percent, Stasny said.

Those who contracted a lease whose rent is indexed to inflation will also see their costs rise.

This is because “the lease law authorises landlords to add 40 percent of the inflation rate to the rent”, Stasny pointed out. “But if the lease is signed for five years or more and the contract contains an indexation clause, the landlord can then pass on to the tenant the entire inflation rate.

How are homeowners affected by inflation?

According to Stéphan Mischler, director of mortgage and real estate platform MoneyPark, it depends on whether you are a first-time buyer, whose mortgage loan is in progress, or non-first-time buyers, who have settled their mortgage.

The former group is most at risk, money-wise.

“With inflation, the ten-year fixed interest rates, which are most often chosen in Switzerland, have started to increase: they have doubled and currently vary on average between 1.8% and 2.5%, compared to around 1% a few months ago”, Mischler told TDG.

“As a result, this doubles the interest cost of a mortgage for those who are currently looking to buy their home or for those who have recently taken out a mortgage.”

However, current owners could also be affected if they have to renew their mortgage in the near future.

Logically, this chain of events will also have repercussions  on potential buyers, as they may not be able to afford higher mortgage rates.

Other housing-related costs have risen in Switzerland as well. For instance, energy, including gas and electricity used by households, will  take a bigger chunk out of an average family’s monthly budget.

READ MORE:  How Covid, Ukraine and energy costs are changing Swiss spending habits

What exactly is inflation and what causes it?

Simply put, it is an increase in the prices of consumer goods and services, causing some loss of purchasing power. In other words, while our wages mostly remained the same, the cost of living went up, and is expected to continue to increase for at least the foreseeable future.

This trend started in mid-2021, as world economies recovered from the Covid pandemic, and Switzerland rebounded better than many other countries. However, with many supply chains still disrupted and struggling to meet consumer demand, prices began to rise.

The situation has worsened since Russia’s invasion of Ukraine on February 24th, which also slowed down or shut down altogether the production and supply of some essential agricultural and energy products, leading to higher prices.

SHOW COMMENTS