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When moving to a new country, many financial decisions must be made. Ideally, some research should be done to understand the financial system of the new country. On top of the actual move, this can be stressful and complicated.
Unfortunately, expats moving to Switzerland often receive bad financial advice when arriving in Switzerland or even planning their moves. This is quite sad because that should not happen to people moving to a new country.
To help a little, I want to list N traps expats must be careful about when moving to Switzerland.
1. Life insurance Third Pillars
The biggest trap expats should be careful about when moving to Switzerland is the life insurance third pillar trap.
The third pillar is an essential part of the Swiss retirement system. This voluntary system allows you to complete your retirement funds and save on taxes.
The second part is what is used to lure expats. Advisors only talk about tax savings, but they do not talk in detail about the two different types of third pillars:
- A standard third pillar account, invested or not
- A life insurance third pillar
The problem is that the life insurance third pillar is a terrible option in most cases. So, people are losing money using a life insurance third pillar instead of a standard third pillar.
So, why are financial advisors recommending life insurance third pillar? Simple! For money! Advisors get large commissions when they sell these products since insurance providers have high fees.
It is not only expats that fall into this trap. These products are being sold to long-time residents as well. However, many expats fall into this trap because their advisors do not give them the complete picture.
So, you should avoid life insurance’s third pillar. And if an advisor recommends this product to you, he likely does not have your best interest at heart (but his own).
2. Financial advisors
I already touched on financial advisors in the previous point, but I want to emphasize this point!
In most cases, financial advisors will hurt your finances much more than they help you.
The issue is that most financial advisors will get commissions from the products they sell you. So, they are incentivized to sell products regardless of whether you need them.
The biggest issue with what they sell is 3a life insurance products. They make a massive commission on them, and most people will never need it. They sometimes also try to sell very complicated funds that will never outperform the market because the fees are so high.
If you want a financial advisor, I would recommend the following rules:
- Only use a financial advisor with a flat fee (no custody fee based on your net worth).
- Only use a financial advisor for advice, and then implement their advice yourself.
I hope you can find honest financial advisors. However, I have not heard many good things about financial advisors in Switzerland.
3. Tax Advisors
On the subject of advisors, we should talk about tax advisors.
The myth is that you cannot fill out your tax declaration in Switzerland. Unfortunately, many expats believe this is true and will use a tax advisor.
But everybody I know (except for expats) does their taxes themselves. It is not complicated and does not take nearly as much time as people think. And now that we have computer applications to fill them, it is even simpler.
Getting a tax advisor the first year to learn how to fill it properly may be interesting. But after this, you should fill it yourself for two reasons:
- To save money.
- To learn exactly how it works and be incentivized to optimize it.
The only reason to get a tax advisor for multiple years is when you have an extensive estate. But this only concerns a minority of people. If you have simple accounts, you probably will not have a complex tax situation.
Learning how to do your taxes yourself will likely only take a few hours and save you money for the rest of your life in Switzerland.
If you want to fill up your taxes yourself, you can start by learning about the possible tax deductions.
4. Expensive investment products
A common theme is that almost everything is expensive in Switzerland. And most investment products are not an exception to this theme.
Most expat will choose a large Swiss bank as their primary bank. And then they will invest in the products provided by this bank. Unfortunately, Swiss banks are extremely expensive to invest in. I have yet to find a Swiss bank with reasonably priced investment products.
Many people try to find a single provider with everything: a bank account, a third pillar, and a broker account. However, there is no single provider with all great offers. So, if you are trying to use a single company, you are doing yourself a huge disservice.
The provider of the best bank is different from the provider of the best third pillar and the provider of the best broker account. So, you need to be extremely careful about not using the first service offered.
So, when looking for an investment product (a 3a or a broker account or funds), you must look at the fees. There are often many different investing fees:
- Custody fees (or management fees)
- Load fees (or issuance fees)
- Redemption fees (or sell fees)
- Inactivity fees
- Transaction fees
- Currency exchange fees
These are the main fees, but Swiss companies are creative when it comes to creating new fees (and hiding them). So, be very careful about the small notes in the conditions of the products.
To recap, you should not use the first offered product for your investments. Instead, you should do your research, compare, and opt for something that suits you and has good fees.
Finally, we should talk about insurance. It is easy to get over insured in Switzerland.
Some insurance is mandatory, like health insurance or personal liability insurance. However, most other insurances are entirely optional. So, if somebody tells you that collision insurance is compulsory on your car, they are lying to you.
So, when shopping for insurance, you should focus on what is mandatory. Then, you can consider supplementary insurance if you need it.
Most people do not need much complementary insurance. Of course, a new car should be insured more than an old car. But a new car will become old and not need such insurance over time.
What matters is that you are covered as you need (but not too much) and that you try to find the cheapest insurance for your needs.
It is also essential to reconsider insurance coverage every few years.
Small financial traps for expats
Here are a few more traps you can easily avoid to save money. And maybe a few more general financial tips for expats coming to Switzerland.
In some cases, some tax deductions will not apply. You cannot deduct your third pillar directly if you are not filling a full tax declaration. And there is not much reason to contribute if you cannot deduct it. The only way would be to request switching to the standard tax declaration. However, you may end up paying more taxes. So it depends on each situation.
If you already have a driving license from another country, you can generally only use it for a year. If you want to use it longer, you must convert it. But be careful because you typically cannot convert it after one year. And if you wait too long, you may have to get a full driving license, which is very expensive.
If you want to avoid fines with your car, remember that seatbelts are mandatory for every vehicle occupant. And you need a highway sticker (annual) to drive on the highway. It is very cheap, at 40 CHF per year.
A small thing you need to be aware of is that some places still do not accept credit cards or mobile payments. We are not much advanced on that front. That means that there are still many occasions when you need some cash at hand.
I hope that this article will help some people avoid traps when moving to Switzerland or after moving to Switzerland.
I do not know whether these traps exist in any country or if the Swiss system here is worse than elsewhere. But we indeed have many traps in our financial system. And while we have a reputation as the country of banks, our banks do not offer excellent products.
So, it is essential to be very careful when arriving in Switzerland. Avoiding these traps could make a big difference in your finances. And if you could avoid these issues, you will likely have a better time in Switzerland.
Did I miss any trap? What should we add to the list?
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