An increase in interest rates is reflected relatively quickly in higher returns of the Smart Deposit. For ETFs tracking the one-day rate, this takes a few days. For bond funds, the central bank’s policy tightening manifests with a slight delay or even in advance, in line with market expectations. The same applies to interest rate decreases.

The Smart Deposit return is paid out practically every day. Therefore, if the ECB raises rates, investors in Smart Deposit will benefit. Conversely, if rates fall, their returns will decrease almost immediately.

Both Smart Deposit and Wallet consist of short-term bonds and instruments tracking short-term interest rates set by the central bank. However, unlike Smart Deposit, Wallet contains bonds with slightly longer maturities.

Therefore, the value of savings in Wallet will fluctuate a bit more than in Smart Deposit. In exchange, it should generally offer higher returns during most periods.

Smart Deposit is more suitable if you need your savings within one year (e.g., for a vacation or tax payment) or if you do not want to see any value fluctuations. On the other hand, if you will need your savings in 1 to 3 years (e.g., for a car replacement or major home renovation) and are willing to accept some value fluctuation in exchange for higher returns, you should choose Wallet.

We have also written a separate blog on this topic. Read it for more information about the differences between these products and examples of situations where they are appropriate.

The risk of losing savings due to bankruptcy in Smart Deposit is similarly low as in a bank. At Finax, funds are protected up to 50,000 euros by the Investment Guarantee Fund, while banks protect deposits up to 100,000 euros via the Deposit Protection Fund. Additionally, at Finax, your assets must be held separately from the company’s assets, whereas in a bank deposit, your savings become part of the bank’s assets, making the bank your debtor.

Investors in Smart Deposit also bear counterparty risk, which is fully managed. Specifically, for ETFs tracking central bank interest rates, counterparty risk arises from swap contracts used by the fund to achieve this yield. Counterparties are large banks (e.g., Société Générale, Deutsche Bank, etc.).

However, strict regulation sufficiently protects you against this risk. Within the fund, the risk from a single counterparty cannot exceed 10%. Swaps are fully collateralized. Only amounts over 500,000 euros in derivatives may not be fully collateralized, which is negligible given funds managing billions of euros. In case of counterparty failure, the fund’s assets remain in the exchange basket (quality bonds, possibly stocks).