3rd Pillar contracts are fundamentally different whether they are taken out in a bank or an insurance company. To better understand the pros and cons, including the length of the investment, here's how to help you make your choice.
Short, medium, or long term?
You want to make capital grow over the long term:
For you, investing is a long-term story. This means you can put money aside and not withdraw it for a period of at least 10 years. If this is convenient for you, then taking out the third pillar by insurance is favorable. In fact, insurance companies have a rate that is guaranteed when the contract is signed. In addition, some products offer prospects for high returns while having high capital protection and security.
Insurance, through its guaranteed capital and protected returns, offers you greater security than bank savings, whose interest fluctuates according to market rates and whose dynamic solutions are subject to the rise and fall of financial markets.
You want to invest your capital in the short term:
In insurance, if you withdraw the funds before 10 years of savings, you will get an amount that will generally be lower (cash value) than what you actually invested. This is why you should choose the banking solution if you want to earn money over a period of less than 10 years.
3rd pillar: security or performance?
The return on your 3rd pillar savings is an important point that will largely be determined by how you want to invest your savings and the type of 3rd pillar solution you choose.
The bank
Banks only offer two types of 3rd pillar solutions; the classic and risk-free solution, but paid at a currently very low interest rate. Or an investment fund solution that is the riskiest and most exposed to the risks of poor market performance or a crisis. Mainly, it is reserved for those who know how the stock market and the economic world work.
In insurance
Insurance also offers the two solutions offered by banks. However, insurance companies offer another type of solution that is an excellent compromise between safety and performance. Indeed, this solution, also called “mixed investment”, is currently the most interesting in terms of returns and security in the medium and long term.
Mixed investment solutions are very attractive for people who want to save for more than 20 years. Indeed, the longer the duration, the more interesting the yield will be. This is the main reason why a 3rd pillar insurance policy is advantageous in the medium and long term.
The flexibility of payments
The bank
The main advantage of a 3rd pillar subscribed to a bank is the flexibility of payments, in fact you can freely pay the amount into your account and at the pace you want, you can also take a break in payments if, for example, you no longer receive income for a certain period of time.
A 3rd banking pillar is therefore ideal at the beginning of your career, when your income is still in the making and when your projects may lead you to withdraw your capital quite early. However, this solution also requires motivation and discipline since you have no obligation to pay.
In insurance
A 3rd pillar in insurance generally offers less payment flexibility than a bank account. Indeed, you define an amount that you will invest on a regular basis and it will only be possible to change this amount after 3 years of contribution. Fortunately, most insurance companies will allow you to take a break from paying premiums if you run out of income for a while.
You want to have maximum security:
In case of incapacity for earnings:
As an option, insurers offer a secondary rate that relieves the policyholder from paying the premium in the event of incapacity for work. This means that in the event of a physical or mental health problem that would cause a work stoppage, the company pays your premiums for you until you recover or until the end of the contract if you become disabled.
This is not the case with the banking solution.
In case of death:
With a 3rd pillar insurance, in the event of death, a contractually fixed capital is paid to the heirs. This capital is greater than or equal to the savings already accumulated.
This is not the case with bank savings. The heirs will only receive the capital that has already accumulated and will also have to pay inheritance fees.
By being the owner:
Thanks to the 3rd pillar in insurance, you can amortize your mortgage credit indirectly while taking advantage of all the advantages of the 3rd pillar. This is where the capital in the event of death and the exemption from premiums in the event of incapacity to earn become all the more important. Indeed, when a misfortune happens, it is difficult for the survivors to find the means to assume the mortgage debt, which eventually leads them to sell the property.
With the two insurance benefits mentioned above, you can be sure that no matter what happens, the property you live in will remain in your possession (even if invalid) or that of your family (in the event of death).
In the event of an economic crisis:
If the bank were to fail, it would only guarantee CHF 100,000 of your 3rd pillar assets. Knowing that the majority of banks do not have the necessary resources to reimburse their customers up to CHF 100,000, it is very likely that in the event of bankruptcy they would pay you a sum well under 100,000 francs
On the other hand, 3rd pillar insurance assets are 100% guaranteed. It is therefore impossible to completely lose the money you paid into your 3rd pillar. In all cases, the reserves are sufficient to cover the capital and in the event of bankruptcy of the company, the management of the 3rd pillars is transferred to another company.
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