Difference between bank promissory notes and loans between individuals

Bank Notes vs P2P between Individuals SEattle Meditation . As always, financial entities are looking for a new product to make our investments profitable with the desire to place our money in their hands. The latest trend is to bet on placing promissory notes between individuals as an alternative way to deposits to capture liquidity. Both products, very similar at first glance, present important differences that investors must know to avoid surprises .

What are bank promissory notes?

It is a fixed income security (debt), which is issued by an entity at a discount, with the commitment to pay a specific yield at the time of maturity. They are short-term and there are maturities between seven days and 25 months, although the most frequent terms are 1, 3, 6, 12 and 18 months.

Which bank notes offer the most profitability?

Currently Bankinter and Ibercaja promissory notes can yield a yield of 4% for a 12-month period, depending on the customer and the volume placed. La Caixa offers 3.75%, Bankia and BBVA, 3.70% for the same term. Popular gives 3.65%, followed by Banesto and Santander, with an interest rate of 3.60 and 3.40%, respectively.

Is there a minimum investment amount?

In general, the bar that entities set to invest in promissory notes is higher than that required for other products such as deposits. In any case, the minimum amount depends on each entity. La Caixa, for example, sells these titles from 1,000 euros. Popular and Santander require at least 5,000 euros. And BBVA and Bankia place the minimum investment at 6,000 euros.

Does the purchase of bank notes carry commissions?

The acquisition of these products is exempt from commissions and is carried out at the financial institution that issues the promissory note. However, the promissory notes are linked to an account, whose cost is usually around 6 euros per quarter, in which the investor receives the accrued interest, and to a securities account, which is usually exempt from commissions.

What if I want to get the money back before maturity?

The notes are listed on a SECONDARY MARKET , but their liquidity is very limited . In the event that the individual wants to cancel the product before the expected deadline, it could have difficulties to achieve it and, depending on the situation, could recover its capital with losses.

On the contrary, a deposit, in general terms, can be canceled at any time without the invested assets being depleted. We are talking about 0.7 profit points in the best of cases compared to the traditional deposit.

Is the performance of these products 100% guaranteed?

The entity that issues the bank promissory notes is the one who guarantees the collection of interest. The rating (quality of the debt) of the bank or savings bank that launches the issue must be monitored to make sure that its solvency is high and that, therefore, it will be able to meet its financial commitments.

Are bank notes or deposits safer?

In principle, the deposits. Term deposits are guaranteed ( up to 100,000 euros per holder ) by the State, through the Deposit Guarantee Fund. This instrument was endowed with an amount of 5,792 million euros, at the end of 2010, a figure much lower than the total volume of deposits. In September, only families had deposits worth 429,313 million. Bank notes, by contrast, are backed by the creditworthiness of the issuer . A strong entity could generate, in some investors, more confidence than the State itself (this will be indicated by the rating agencies hired by the Spanish State).

What happens if the issuing entity of the bank promissory notes goes bankrupt?

Investors will place themselves, in the event that the issuer of the bank promissory notes enters bankruptcy, behind the privileged creditors.

Why is the bank giving priority to the commercialization of promissory notes over deposits?

Financial entities, when they formalize a deposit, have to contribute a percentage of the amount placed in these products to the Deposit Guarantee Fund. In other words, the cost of a savings product for the balance sheet of an entity is higher than that of bank promissory notes.

How much does the bank have to contribute to the FGD?

In general terms, banks have to allocate 0.6 per thousand of the money placed in deposits to this fund; savings banks, 1 per thousand, and credit unions, 0.8 per thousand. In addition, since July, entities have certain limitations on the interest rate they offer on their savings products, which, in the case of a 12-month deposit, stands at 3.11%. Once this limit is exceeded, contributions to the FGD will be multiplied by five.

Where can I find the detailed conditions of this product?

On the CNMV's website all the bank's promissory notes programs and the issuance brochures of each product are registered. The conditions, risks, solvency of the entity and other relevant information are detailed there. In any case, if you are willing to invest in bank promissory notes , your office is obliged to provide you with the prospectus for the issue and to explain what the product consists of.

How much paper have Spanish banks and savings banks issued in promissory notes?

Throughout the year, banks and savings banks have issued 21,977 million euros, although part of that amount has also been sold to institutional investors. Banesto, BBVA and Santander are the three banks that are leading, for now, the race in attracting promissory notes. The former has managed to place 3,634.33 million euros, while BBVA and Santander have made 3,413.02 and 2,862.96 million, respectively, according to data from the private fixed income market, AIAF.

Currently, at least a dozen entities commercialize promissory notes and it is probable that others will join soon.

Bank promissory notes are short-term and have maturities between seven days and 25 months, although the most frequent terms are 1, 3, 6, 12 and 18 months.

Then through this report we will compare the bank promissory notes against the P2P loans between Individuals but of course without banks involved. These are the main aspects that relate them and that separate them.

Why P2P loans between individuals and not bank promissory notes?

Regarding the term of the promissory notes, except those of 7 days, the P2P between individuals is negotiated between 12.24 and 60 months but its profitability triples the bank note. A loan between individuals P2P with a mortgage guarantee starts from an 8% annual return up to a maximum of 25%. The difference is remarkable.

What if I want to get the money back before maturity?

Every product that is traded in a SECONDARY MARKET has its mystery, it is only necessary to remember the virtue of the preferred ones, to give an example.

Loans between individuals P2P regarding the recovery of money is agreed in a single charge or interest in case of renewal, the investment cannot be recovered but the investment can be negotiated or transferred to a third party or a company. With what to its greater profitability it has the same disposition as bank promissory notes, the only thing that bank promissory notes could have difficulties to collect them and depending on the situation or lose money that is in fashion.

Are promissory notes or deposits or home-equity loans safer?

Nowadays there is nothing financially secure. It is not really known where the shots can go. You only know what they tell you and it is usually half the truth. What is certain is that in a loan between individuals with a mortgage guarantee an investment is made that does not normally exceed 35% of the value of a property . Generally, unless the properties fall to 30% of their value, the investor will not have losses. The property and its value will guarantee your investment.

The result of the comparison between Bank Notes vs P2P between Individuals is to your liking. Be your own investment manager and make your money more profitable than in your bank. It is recommended by seattlemeditation.org .