Key lending rate in Sweden bodes well for investor use of tax wrapper

The Swedish Investment Fund Association says the new benchmark rate for government debt published this week by the Swedish National Debt Office bodes well for investors using the country’s tax efficient investment savings account regime.

The benchmark rate – Statslåneräntan – constitutes the average market rate on government bonds that have at lease five years more to run. The rate is meant to reflect the risk free long term market rate.

On 28 November the National Debt Office published a rate of 2.09%. That means, the Association said, that long term savers and investors now have a key benchmark against which to measure investments through 2014.

“The rate has continued at an extremely low level, which ought to get more people to realise the benefits of the ISK [investment savings account],” said Hanna Helgesson, financial savings economist at the Swedish Investment Fund Association.

The ISK is a tax wrapper regime, introduced in the past couple of years, which enables investors to make tax efficient savings.

“It means that if your savings increase in value by more than 2% through 2014 it will be more beneficial to save via ISK than outside,” Helgesson added.

“Right now the rate is extremely low and we cannot expect it to remain so forever. If we look back over the past 10 years then the average [benchmark rate – Statslåneräntan] it has been around 3%. ISK is particularly suited for equities and funds with equities in them, which long term can be expected to offer a higher return than [the benchmark rate].”

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