How to save money, everything you need to know

Learn about the main savings instruments on the market
The traditional concept of saving relies on the idea of not spending money on unnecessary things and depositing it and letting it accumulate over time. Or, put another way, exchanging present consumption for future consumption. However, today we know that saving without putting this money to "work" means that inflation is undermining its purchasing power. Put another way, it means we're getting poorer. Because of this, over the medium and long term, it's not enough to save: you have to invest your savings. In order to encourage individuals to save and to capitalize on those savings, financial institutions have developed a series of instruments that allow them to take advantage of their savings depending on their needs and expectations. In this article, we explain how to make the most of your savings by using the most popular financial products, and how to choose the one that best suits your needs.
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Long-term savings plans: SIALP and CIALP

These savings plans are designed to encourage individuals to save for retirement, and offer insurance (SIALP) or bank account (CIALP) variants. These plans are also known as Savings Plans 5; One of its benefits is that if the investment is held for a minimum of 5 years, the returns are exempt from personal income tax.

There are two types of savings plans:

  • Individual Long-Term Whole Life Insurance (SIALP): this option is based on the purchase of a survival and death insurance that is taken as a long-term saving instrument and of which the contracting party is, in addition to the insured party, a beneficiary. SIALPs offer a specific interest rate that is established when the plan is opened. As a result, the beneficiary can know in advance the yield they can expect to receive when they cash in their plan.
  • Individual Long-Term Savings Account (CIALP): in this case, the individual signs with a bank to open a deposit associated with an account, where the returns generated by investing the contributions of the contracting party are deposited.

The law states that individuals can only have one of these two products at the same time. The money can be withdrawn at any time, though if this is done before 5 years have elapsed, you will lose the tax advantages mentioned above. Both types are considered to be low risk, since they guarantee to repay at least 85% of the initial investment.

Pension plans

Pension plans are long-term savings products especially designed for retirement. During their working life, the plan's beneficiary makes regular or one-off contributions (up to a maximum of 8,000 euros per year), which are invested as per the plan's investment policy. There are plans for every risk profile. Those who are far away from retirement can take on certain risks in search of maximum returns. As retirement draws near, it is advisable to transition to more conservative plans.

In general terms, pension plans are characterized by having very low liquidity, since only the principal contributed can be withdrawn. The returns can be withdrawn once the account holder retires or when certain contingencies or situations occur, such as long-term unemployment, disability or serious illness. And, starting on January 1, 2025, it will also be possible to withdraw any contributions made at least 10 years earlier. This new measure has considerably enhanced the liquidity of the plans, the goal being to incentivize this type of pension savings.

One of the main advantages of a pension plan is its tax benefits: holders can deduct the amounts contributed from the taxable income base on their annual tax return, thus reducing the amount of taxes to be paid and creating significant additional savings that, ideally, would be invested back into the plan.

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PPA and ISSP

Guaranteed Employee Pension Plans (PPAs) and Individual Systematic Savings Plans (ISSPs) are two types of savings instruments that are characterized by being associated with the purchase of an insurance policy. As with the other products, holders pay into ISSPs and PPAs, which invest these contributions and pay a return to the plan holders.

The PPA is similar to a pension plan, with the exception that it is set up as a life insurance policy rather than as a pension fund. PPAs are thus designed to be cashed in at retirement, unless one of the contingencies described occurs. ISSPs, on the other hand, allow the money to be withdrawn at any time, although early withdrawal may result in the loss of its tax advantages. They are exempt from taxes if they are held for a minimum of 5 years and are paid out in the form of annuities.

With regard to profitability, PPAs offer a guaranteed return based on a fixed interest rate that is established when the policy is purchased, which is why they are advisable for investors with a more conservative profile. ISSPs, on the other hand, can offer a fixed return throughout their life or offer a variable return that is based on trends in the financial markets.

At BBVA, we want to help you make the most of your savings. Visit bbva.es and check out our savings and investment section, where you can find a wide range of pension plans and savings insurance. We also offer several alternatives, such as deposits and investment funds, so you can choose the product that best suits your long-term savings goals.

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