Rental deposit insurance is gaining popularity nationwide as banks continue to cut the interest paid out on deposits in rental deposit accounts. While already popular in French-speaking Switzerland, this insurance is gaining ground in German-speaking Switzerland as well. Here moneyland.ch analyzes the fine print behind policies to clear up the confusion surrounding this insurance.
Home rental deposit accounts compared
Conventional rental deposit bank accounts are still the most popular deposit solution in Switzerland. Renters deposit the equivalent of up to 3 months’ rent into a blocked account – as per their rental agreement. Interest rates are similar to those of regular savings accounts. Currently interest is very low.
Raiffeisen Switzerland recommends that its member banks pay interest of 0.1% per annum. Migros Bank offers 0.06% per annum, Bank Cler 0.05%, the Zürcher Kantonalbank 0.025%, Credit Suisse, Zuger Kantonalbank and UBS pay 0.01% interest. The disadvantage of rental deposits is that your money is tied up in a blocked account throughout your full rental term. To help renters avoid this, enterprising insurance providers offer rental deposit insurance. This insurance relieves renters of their obligation to put down a rental deposit in a rental deposit account.
Misconceptions of rental deposit insurance are common
The function of rental deposit insurance is widely misunderstood. Many people look at this coverage as a genuine rent insurance, but in actual fact rental deposit insurance is a rental guarantee rather than a genuine insurance product. If a tenant cannot pay their rent over an extended period, the rental deposit insurance advances the due rent to their landlord. However, the tenant is required to repay the advance. Rental deposit insurance does not cover the cost of damages to a rental home, so it is not a replacement for personal liability insurance or household insurance.
Major differences in insurance premiums
Another popular misconception is that rental deposit insurance works out cheaper than putting down a deposit. But in practice, the freedom to avoid tying up your money comes at a price. The pricing structure varies between rental deposit insurance policies. To find the true cost of a policy, all premiums, fees and charges must be considered. The moneyland.ch rental deposit insurance comparison accounts for all relevant costs. In addition to annual premiums, minimum, flat-rate and administrative fees may also apply. All insurers add a 5% stamp duty.
Example: If you take out a rental deposit insurance policy for a 5000 Swiss franc deposit on September 1, you will pay between 199 and 427 francs for the first insurance year – depending on which policy you use. During the first year, AdunoKaution would work out cheapest at 199 francs. Helvetia and AXA Winterthur (both 210 francs) are next in line, followed by 3a Kaution (236.25 francs). SwissCaution would be the most expensive option, at 427 francs during the first year.
Over a two-year term, Helvetia and AXA are the most affordable policies at 420 francs each, followed by 3a Kaution (472.50 francs). SwissCaution would be the most expensive, at 710.50 francs. The least affordable offers may cost more than double what you would pay for the least affordable offers. The higher the insured deposit, the more notable the differences in pricing. The cost of policies covering a 10,000 franc deposit ranges between 199 francs and 602 francs for the first year.
Complex pricing at SwissCaution
With more than 190,000 policyholders, SwissCaution is the Swiss market leader. The Swiss post office is just one of its notable distributors. But it also has the least transparent pricing structure, and this can lead to customers paying more than they expect. During the first calendar year policyholders are expected to pay a flat fee of 231 francs – regardless of what month of the year the contract begins. After that, an insurance premium equal to 5% of the insured deposit is levied, along with a 20-franc administrative fee and stamp duties. If you were to take out a policy in October, you would pay 231 francs for just a few months of coverage.
Blocked account cheaper than rental deposit insurance
Rental deposit insurance is generally expensive. In addition to premiums – which are typically equal to 4% - 5% of the insured deposit – you may also be charged administrative fees and fixed fees. Renters with good creditworthiness may spend less by taking out a personal loan to put down as a deposit instead of getting rental deposit insurance.
If you can afford to go without the money required for a rental deposit, you should consider placing the money in a rental deposit account in spite of the low interest earned. If you cannot afford to put down a deposit and plan to use rental deposit insurance instead, make sure to compare the costs of policies carefully.
The costs of rental deposit insurance policies vary based on the size of the insured deposit, the insurance term and other factors. The interactive rental deposit insurance programmed by moneyland.ch lets you compare the full cost of policies based on your individual needs.