This article provides a detailed analysis of the main differences between fixed deposits and endowment insurance, covering the essence and purpose, risk and return, liquidity and flexibility, tax treatment, and applicable groups and scenarios. Through this article, readers can gain a more comprehensive understanding of the features and benefits of these two financial tools, allowing them to make a more informed choice based on their personal or family's financial planning needs. Whether you're looking for solid returns or you're looking for risk protection and financial growth at the same time, you'll find valuable information and guidance from this article.
Today, a customer asked, what is the difference between bank time deposit and savings insurance, and what is the difference between time deposit and savings insurance.
What is a bank fixed deposit?
A fixed deposit is a deposit in which the bank and the depositor agree on the term and interest rate in advance at the time of deposit, and withdraw the principal and interest after maturity. This deposit method has the characteristics of a minimum deposit period of 3 months and a maximum of 5 years, with a large choice and a relatively stable interest income.
Specifically, a fixed deposit is a savings method in which the bank and the depositor agree on the deposit period and interest rate in advance, and the bank pays the principal and interest to the depositor in a lump sum after maturity. There are many options for the term of fixed deposits, such as three months, six months, one year, two years, three years, five years, etc. During the deposit period, depositors cannot withdraw funds at will, and if they need to withdraw early, they may need to pay a certain penalty.
The interest rate on bank fixed deposits is usually higher than that on demand deposits because banks are able to use these funds more steadily for investment. However, interest rates can also be affected by changes in market interest rates, so you need to be aware of how interest rates change when making deposits.
Fixed deposits are a relatively stable, safe and relatively high-yield way to save money, which is suitable for those who want to obtain fixed income over a certain period of time. However, it is important to note that since it is not possible to withdraw funds during the deposit period, it is necessary to plan the use of funds in advance.
What is Endowment Insurance?
Savings insurance, also known as savings insurance, is a special insurance product that combines the function of insurance with the function of savings. This type of insurance not only provides risk protection, but also accumulates a certain cash value over the life of the insurance. Common savings insurance includes life insurance, pension insurance, education insurance, etc.
Savings insurance usually has a fixed insurance period, during the insurance period, if the insured does not have an insured accident, then the insurance company will return a certain amount of insurance money at the end of the insurance period, which usually includes the premium paid by the insured and a certain amount of interest or dividends. This return method is similar to the bank's lump sum deposit, so savings insurance is also vividly called "insurance that does not cost money".
The main features of endowment insurance include: it provides protection and accumulates cash value, the insurance period is fixed, the insurance money is returned at the end of the insurance period, and it usually has a lower risk. Savings insurance can be a good option for people looking to plan for their future finances through insurance. However, when buying savings insurance, you need to read the terms of the insurance contract carefully to understand the specific coverage of the insurance, how the cash value is accumulated, and how the insurance money will be returned.
In general, endowment insurance is an insurance product that provides both protection and savings functions, and is suitable for those who want to accumulate a certain amount of cash value while protecting against risk. However, when buying savings insurance, you need to choose according to your own needs and risk tolerance, and carefully read the terms of the insurance contract to ensure that your rights and interests are protected.
Hong Kong Insurance: Unlimited change of insured + pre-designation of insured to achieve multi-generational inheritance
Hong Kong's unique insurance system allows for an unlimited number of changes of insureds, which provides great flexibility for the transfer of wealth across generations. Compared to domestic insurance, which cannot be changed once the insured is completed, Hong Kong insurance breaks this restriction. The policyholder can change the insured at any time, thus enabling the multi-generational transfer of family wealth.
In addition, Hong Kong insurance also supports the appointment of an insured in advance, so that after the death of the original insured, the policy can be seamlessly passed on to the new insured, continuing to provide protection for the growth of family wealth.
Take a 50-year-old man, for exampleIf he pays a premium of 50,000 RMB per year for 5 consecutive years, the total premium reaches 250,000 RMB.
When the insured reaches the age of 80, the expected gross benefit of the policy can reach RMB1.21 million. In this case, if the insured is replaced by the next generation, the income of the policy will not be suspended due to the death of the original insured, but can continue to enjoy compound interest growth on the existing basis and further accumulate family wealth.
This method not only ensures the inheritance of wealth, but also promotes the continuous growth of family wealth.
2. The policy splitting function makes the inheritance more flexible
Examples:Mike, a 35-year-old entrepreneur, has taken out a $200,000 policy. In order to pass on his wealth and better plan for his retirement, Mike split the policy into multiple parts and gave the policy to his loved ones for generations to come.
1 copy to replace the insured person with a son to pass on the family wealth; 1 is given to her daughter as a wedding gift, and the remaining 1 is to support her future retirement life, and the inheritance of the elderly is correct.
This split-policy approach increases the flexibility and personalization of legacy planning, allowing families to allocate wealth more precisely based on their financial goals and the needs of family members.
3. The function of settling the death benefit + type of trust makes the inheritance more controllable
Hong Kong insurance offers a pass-on mechanism for the benefit of a claim, which has a variety of functions similar to trusts, allowing policyholders to pass on wealth to the next generation in one or more ways.
Take the $1 million death benefit as an exampleThis money can be effectively passed on in six different ways:
Full Lump Sum Payment: A lump sum payment of the entire $1,000,000 to the heirs.
Full instalments: For example, plan to pay $50,000 a year for the next 20 years to gradually pass on the benefits to the next generation.
Partial Instant Pay plus Partial Installment: $500,000 paid immediately, while the remaining $500,000 is paid in installments over the next 10 years, $50,000 per year.
Age-based instalments: If your heirs are younger, you can set a specific age, such as when they reach adulthood, and start paying your claim in instalments.
Incremental payment methods: The payment amount increases year by year, such as $50,000 in the first year, $60,000 in the sixth year, and so on.
By combining these flexible payment methods, Hong Kong insurance can achieve more efficient, certain and controllable wealth inheritance, ensuring that family wealth can continue to grow from generation to generation.
4. Value preservation and appreciation function
Savings insurance in Hong Kong is known for its ability to preserve and increase its value, providing an efficient way to manage your wealth. This type of insurance product can achieve capital growth at an expected annualized rate of return, such as 7%, making it a significant advantage in terms of wealth appreciation. Such a design not only protects investors' funds from inflation, but also actively promotes capital appreciation, providing policyholders with a safe and efficient path to asset growth.
5. Confidentiality
Overseas assets, especially those held through Hong Kong insurance, provide a higher degree of privacy protection, a feature that is an important advantage for the security and confidentiality of family assets. This secrecy not only helps to protect assets from unwanted outside attention and potential risks, but also plays a key role in global asset allocation, providing a more stable and private environment for the protection and growth of family wealth.
The difference between fixed deposit and endowment insurance
There are several main differences between bank fixed deposits and savings guarantees:
1.Whether contributions and deposits are secured
Refer to Hong Kong Deposit ProtectionDeposits in different currencies are protected with banks up to a maximum of $500,000 per account. At the same time, the HKMA has reserve requirements for banks, mainly in accordance with the minimum capital adequacy ratio required by the Banking Fast (Capital) Rules.
Similar to banks, insurance companies are subject to the supervision of the Insurance Regulatory Commission (CIRC) and all insurers are required to set aside a cash reserve for payment of policy claims. There has never been a bankruptcy of any life company in Hong Kong.
2.Entry threshold
Time deposits, such as savings insurance, have entry thresholds, while time deposits have a lower entry threshold. At present, some virtual banks require a fixed deposit threshold as low as a few hundred yuan, with the goal of attracting new funds. On the other hand, if the deposit insurance is paid in a single payment, the entry threshold is higher than that of the bank fixed deposit. However, endowment insurance can provide a monthly contribution to save money, which provides more flexibility than a regular lump sum payment from a bank.
3.Guaranteed returns
If a fixed deposit is used as an investment, the bank will provide a guaranteed return at the interest rate agreed by both parties.
On the contrary, the returns of endowment insurance are divided into guaranteed and non-guaranteed returns, but the insurance company is not obligated to fulfill the non-guaranteed returns, and the reader can only refer to the fulfillment ratio provided by each insurance company to choose the insurance company product with the higher fulfillment rate.
4.Duration of storage
Bank term is mainly divided into long-term and short-term returns, most of which are long-term returns will be higher than short-term returns, but there is one exception, some banks in order to attract new customers, short-term high-interest savings to attract people to put money into the bank, is another matter. Generally speaking, the fixed deposit period is mostly 1 month, 3 months, half a year, 1 year, and rarely longer.
Savings insurance offers more options in terms of tenure, but the duration will be longer, and the investment period can range from 1 to 25 years, and the threshold for the savings period is higher. Single and compound interest rollover.
There are advantages and disadvantages to CD and endowment insurance. Albert Einstein once said that the compound interest effect is the eighth wonder of the world The principal of compound interest is rolled over with interest every year as the principal of the next year's investment, so when the investment period is longer, the effect of compound interest is more obvious, and the amount of accumulation will be higher.
Summary
The bank's regular return is calculated on a single interest basis, that is, the maturity date will be paid directly according to the principal and interest, so you have to renew it yourself to enjoy the compound interest effect, but due to the short lock-in time of the funds, the flexibility is relatively high. Most of the endowment insurance policies have a tenor of more than 1 year, and if they are dividends accumulated, they can have a snowball effect, and the return is generally better than that of fixed deposits. The two should be selected to see which choice is more suitable for you, and it does not have to be one or the other, you can do both at the same time.
Overall, Hong Kong insurance offers a relatively simple and cost-effective way to pass on and manage wealth as a tool for wealth succession, especially for investors seeking capital protection and instalment payments.
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