As early as June last year, we have witnessed the "face-changing" reduction of bank deposit interest rates. In recent months, there have been reports of the suspension of large-denomination certificates of deposit, which once caused a sensation.
It seems that in 2024, the deposit interest rate will continue to fall!
This makes many friends who pursue stable financial management very anxious. Keeping money in the bank can't even beat inflation, and it is increasingly necessary to seek other stable financial management tools.
Among the many financial management tools, savings insurance, which is safe and guaranteed and can lock in lifelong interests, has been favored by many people.
However, some people are puzzled about the fact that savings insurance can lock in lifelong interests:
Banks can only lock in interest rates for 5 years at most, so why can insurance products lock in lifelong interests? Will there be redemption problems?
Today, I will explain this to you from the logic of how banks and insurance companies make money.
1. Bank VS Insurance Company Profit Model
Bank
The profit model of banks is mainly completed through the deposit and loan business of ordinary people.
We deposit money in the bank, and the bank pays a certain interest. At the same time, the bank lends the deposits received to other people and charges loan interest. The interest difference between the deposit interest and the loan interest is the bank's profit.
For a simple example, the deposit interest rate is 2%, the loan interest rate is 5%, and the difference of 3% is the profit that the bank can obtain.
So if banks want to make money, they have to work hard to attract deposits and lend money, but the current situation is: deposit business has increased, but loans are difficult to lend.
Looking at the data, the net interest margin of the banking industry in the fourth quarter of 2023 released by the State Financial Regulatory Administration is 1.69%, which is already lower than the net interest margin warning line of 1.8% for commercial banks set by the regulator, which is very dangerous.
In the past two years, everyone has also witnessed a lot of "historical measures": the interest rate of existing mortgage loans has been lowered, the LPR quotation rate has been lowered again, and various regions have cancelled purchase restrictions, etc., all of which have the purpose of promoting loans and increasing economic vitality.
The loan interest rate has dropped. In order to avoid a further decline in the net interest margin, the deposit interest rate will naturally follow suit.
In fact, after saying so much, it all comes down to the economic downturn. People lack confidence in future economic development and do not want to bear the pressure of loan debt. Some people even pay off their loans in advance if they have some spare money.
Judging from the current economic situation, many things can be said to be obvious: loan interest rates and deposit interest rates will continue to decline, which is the general trend...
Insurance companies
Unlike banks, the profit model of insurance companies can be considered as money making money, that is, investment.
After we buy insurance products and pay premiums, the insurance company deducts the insurance, operation and other expenses, and the remaining part will be used for investment to make money, which is often referred to as "interest rate spread" in the insurance industry.
In addition to interest rate spreads, there are also mortality spreads and expense spreads, which are related to the profits of insurance companies. Let's take a brief look at them:
? Mortality spread: the difference between the actual claim amount and the expected claim amount. According to actuarial data, the actual claims are basically close to the expected amount, and generally no money is made.
? Expense spread: the difference between the salary and marketing expenses of the insurance company's branches and the scheduled expenses. Generally, the expense spread is a loss.
? Interest rate spread: the difference between premium and the return from investment with premium. Interest rate spread is the main source of profit for insurance.
In other words, whether an insurance company can make money depends mainly on its investment ability.
At the end of last year, the regulatory authorities required insurance companies to disclose the average investment return rate in the past three years for the first time. According to statistics, among the 77 life insurance companies, 40 had a comprehensive investment return rate of more than 4.5%; 17 of them exceeded 5%, and 11 exceeded 5.5%, which is enough to prove that the investment ability of insurance companies is still very good and stable.
Of course, some friends will have doubts. Even if the investment ability of insurance companies is excellent, if the deposit interest rate keeps falling, according to the characteristics of savings insurance products that lock in benefits and are not affected by market fluctuations, at low interest rates or even negative interest rates, will the insurance company really pay normally?
2. If the deposit interest rate keeps falling, can the insurance company really pay in the future?
First of all, the investment ability of insurance companies is indeed good, and we can have some confidence in it.
Insurance companies not only have huge and long-term cash flow, but also have strict restrictions on investment projects.
The main savings insurance, which we also call long-term insurance, has premium income for up to 20 to 30 years. Unlike banks that have to pay depositors interest every three to five years, savings insurance such as annuity insurance and increasing life insurance often pay out after more than ten years or even decades. Insurance companies hold funds for a long time, which ensures that insurance companies have a steady stream of cash flow for investment.
It is precisely because of the long holding period of funds that even if the market is sluggish and the insurance company's short-term investment fluctuates, it can adjust the investment return in the long term.
In addition, insurance companies do not invest in so-called high-risk and high-yield projects, but invest more cautiously in bank deposits, treasury bonds, equity, real estate and other projects with long cycles and high security.
There are also some projects led by the state with long payback cycles and certain thresholds, such as the Belt and Road Initiative, West-East Gas Transmission, Old City Renovation, etc. Insurance companies can also participate in them because of the special nature of funds.
Therefore, insurance companies are definitely one of the organizations with the strongest investment capabilities, and they have enough confidence to ensure the payment of locked-in interests.
Furthermore, insurance companies are also very flexible and will adjust their business according to changes in the market environment to avoid the occurrence of redemption risks as much as possible. For example, in the past two years, the scheduled interest rate has been frequently adjusted, and the policy of unified reporting and banking has been implemented.
You should know that the scheduled interest rate of savings insurance in 2022 can still reach 4.025%. Now after several rounds of adjustments, it has reached 3%. Whether it will be adjusted in the future is unknown. It can only be said that it is more reassuring to lock in the benefits early.
Of course, friends who have already bought savings insurance don’t have to worry about how the market will fluctuate in the future, how much the deposit interest rate will drop, and how much the insurance policy agreed upon when insured is in black and white and has legal effect, and it can be redeemed normally when the time comes.
The most extreme situation is nothing more than the bankruptcy of the insurance company, but it will not affect the normal redemption of our insurance policy. Look at the previous regulatory authorities’ handling of Hengda Life, Tianan Life, and Huaxia Life to know that the legal rights and interests of users in related insurance contracts will be guaranteed.
3. Lock in long-term stable income as early as possible
If you have spare money and want to take good care of it, you might as well consider safe and stable savings insurance to lock in benefits as early as possible. It has two major advantages:
High security, the benefits are written into the contract. At any point in time, the cash value of the policy can be found in the insurance contract. When to receive it, age or monthly, how much money can be received, and how old to receive it, the terms of the insurance contract will clearly indicate;
It can lock in long-term benefits and is not affected by the downward trend of interest rates. For example, the high-interest products of about 10.0% in the 1990s, the insurance company still has to pay for them now, even if the interest rate has fallen to 3.0% now, but the contract has been agreed, it will not be affected by the external environment.
Savings insurance can also accumulate and increase in value over time, and the longer the time, the more considerable the return. However, there are also some disadvantages, which should be understood before insurance.
① Usually there will be a basic growth period of several years. Early "withdrawal" during this period may cause certain losses. If you need to use this money for three to five years, it is not recommended to insure.
② Different products have different interest rates. When making a choice, be sure to follow the actual contract terms. If you have any questions, consult a professional in a timely manner.