Let’s say you have been saving RM500 every month.
When it comes to saving money for the future, you have many options, each with its own set of advantages and considerations.
Among these options, traditional bank savings accounts and cash endowment plans stand out as popular choices. Both avenues offer unique features and benefits, making it essential to understand the differences to make an informed decision.
Let’s discuss the key distinctions between bank savings and cash endowment plans, helping you find the best fit for your financial goals.
What is it?
Bank Savings: A regular bank savings account is primarily used for keeping money safe and easily accessible.
Cash Endowment Plan: A cash endowment plan is a type of insurance plan that combines savings and insurance components. It is designed for long-term savings with the added benefit of life insurance coverage.
Interest Rates
Bank Savings: Banks usually provide lower interest rates on savings accounts, which may not keep pace with inflation, resulting in diminished purchasing power over time.
Cash Endowment Plan: Cash endowment plans generally offer higher interest rates, which can help the savings grow at a more favorable rate and potentially provide better returns in the long run.
Risk and Protection
Bank Savings: Deposits in a savings account are generally safe, as they are protected by government-backed deposit insurance up to a certain limit (varies by country). However, they do not offer any life insurance coverage or additional protection.
Cash Endowment Plan: A cash endowment plan provides both savings and life insurance coverage. If the policyholder passes away during the policy term, the designated beneficiaries receive a lump sum payment, ensuring financial protection for the family.
Tax Benefits
Bank Savings: The interest earned from a regular savings account is generally subject to income tax.
Cash Endowment Plan: Cash endowment plans may offer tax benefits, such as tax-free growth or tax deductions on premiums paid. It’s essential to check the specific tax regulations in your country.
Flexibility
Bank Savings: Bank savings accounts offer high liquidity, allowing account holders to access their funds whenever needed without any penalty or restriction.
Cash Endowment Plan: Cash endowment plans typically have a specific policy term, and early withdrawal or surrender may lead to penalties or loss of benefits. Our YouthBuilder Protector Savings offer partial withdrawals.
Added benefit
Bank Savings:NONE
Cash Endowment Plan:Gives you extra protection and benefits such as life insurance coverage.
Conclusion
In summary, Cash Endowment Plan offer the potential for higher returns and life insurance coverage. Bank savings provide higher flexibility but offer lower returns and no additional benefits.
The choice between the two depends on your :
- savings goals, and
- time horizon.
Diversifying your savings across different asset classes may help balance risk and returns in your overall portfolio. It’s essential to assess your individual financial needs and consult with a financial advisor before making any investment decisions.
If you’re saving RM500 a month, why not put RM250 in bank, and another RM250 in Cash Endowment plan.
By doing so, you’re getting the best of 2 worlds! Start making changes to your savings today before it’s too late.