About building savings

Buildings savings »  About building savings

What is buildings savings?

Buildings savings has quite a long tradition in Europe, especially in Germany and Austria. At the beginning of the 1990s, buildings savings started to be implemented in the Czech Republic and in Slovakia; in the late 1990s it was also implemented in Hungary and Croatia.

Buildings savings was introduced to the Czech market by the Act on Buildings Savings with State Assistance (96/1993 Coll.). Having been in existence only a little over ten years, buildings savings presents one of the most recent banking investments available. During the short time of its existence, buildings savings has succeeded in serving a great deal of the Czech population, and has gained their confidence as a partner for housing finance.

Creation of the buildings savings fund

Buildings savings is based on the principle of the participation of clients in the creation of joint resources, which can be employed to grant loans with advantageous interest rates for housing acquisition, housing reconstruction and, in general, for meeting the housing needs of clients. Each client saves for a period of time (at least 24 months by law) and, after fulfilling set conditions, can be granted a buildings savings loan.

The entitlement to the loan is determined by the principle of merit. This principle in buildings savings is represented by ratings. Clients deposit money into the building savings banks. Each client is assigned a rating number, which is a determination of the merit of their request based on the specific sum of money that the client has on deposit and the period of time over which they have deposited money with the bank. The existence of a rating number, in combination with the statutory minimum period of saving of the state assistance (previously 5 years; now 6 years) allows the buildings savings bank to plan the usage of means and e.g. to adhere to the liabilities in accordance with the interest rate during the period in which a client pays off the loan. These principles are the cornerstones of the buildings savings; alteration of these principles would threaten the system.

The role played by clients saving in the system

An important and irreplaceable role in the closed-end buildings savings system is played by clients who do not need to meet any particular housing needs, but rather utilize this product as a profitable method of increasing the value of their savings. The state assistance, which is provided to all clients, is employed in the buildings savings system for two reasons. It provides a further source for precisely defined purposes for clients that employ buildings savings to meet their housing needs. However, the main purpose of the state assistance in the buildings savings system lies in increasing the motivation to save. For clients saving in the system, the state assistance represents a bonus for providing their savings through the buildings savings system for clients who need these funds. Opinion polls prove that a high percentage of saving clients, who have not requested a loan, still employ their savings to meet their housing needs.

Security of buildings savings

One of the most important attributes of buildings savings is the high degree of its security. Only specialized banks are allowed to provide buildings savings on the basis of a special license. The law limits any high-risk commercial activities of buildings savings banks; buildings savings thus can be considered one of the safest financial investments available.

Direct and indirect effects of buildings savings

Buildings savings enables citizens to meet their individual housing needs, and increases interest in housing modernization. One consequence of this is a favorable effect on development of construction production oriented towards housing construction. Part of the funds invested in buildings savings are thus returned to the state in the form of a higher volume of income taxes paid by construction companies and enterprises operating in related areas, such as the production of construction materials and components, the production of sanitation technology, etc. At the same time, the growth of production and sales influence employment and levels of income. Higher income results in higher consumption, and consequently in higher state budgetary resources. The direct effects of buildings savings in the area of meeting housing needs, as well as the wider indirect effects, clearly confirm the legitimate existence of buildings savings on the banking market and the legitimacy of state assistance to this product.

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