10 Ways to Grow Your Savings in Indonesia

I kicked off 2017 with a wonderful New Year’s holiday. It was a great way to start the year, except for the fact that my money seemed to fly out of the window so fast. Understandably, I was relieved when my January pay came through and I could actually start to think again about some serious matters, like SAVING…

You’d think that saving comes easy for me, a bule from Belanda working as an expatriate here in Indonesia. Growing up in the Netherlands, I was always taught the importance of putting aside some of my money into a bank savings account. That is probably why the Dutch are the world champion in savings and pensions per person. So, saving money should come naturally for me.

The thing is, I used to spend most of my money on traveling. But then I had kids, and it dawned on me that I had to start putting something aside for them and, well, a bit for me too. I’ve hit 50 years old now and if I want to travel again when I retire – embracing my second youth, then I need to start saving my money soon. I started by setting aside 10% of my take home pay every month. This has allowed me to build up a small buffer for unexpected costs in the future, for my kids or for my Hippy traveling days when I retire.

But from time to time, I think about the way I save my money and how I want to see it grow. So the key question is, where do you put your money away safely? More importantly though, how can you grow it?

Good news. I’ve done the research for you. Here are my tips on where to save and grow your money in Indonesia.

This table below sums it up for you. At the bottom of this article you can go directly to the conclusion.

1. Cash : You are guaranteed to lose ± 3.5% in 2017

Even if your money does not get stolen, you will still lose money if you keep it as cash. Your hard-earned cash will lose some of its value per year to inflation. The Indonesian rupiah is forecasted to devalue by around 3.5% in 2017. Bank Indonesia is doing a great job keeping inflation rates low, but still it means that every bill of Rp. 100,000 that you keep will be worth Rp. 96,500 at the end of the year.

2. Time Deposit : Safe, but you will only earn 5% or less

If you open a time deposit (savings account) with a bank you can earn up to 6.5% over the next year. The highest interest rate is currently being offered by Bank BNI. Mandiri is offering 6%, BCA 5-6% and HSBC 4.5%. You can see the list here. You can maybe get 6.25% at a smaller commercial bank such as Bank Sampoerna, but you will need a hefty deposit of over Rp. 1 billion.

If you lock up your money for a year or more you will get the best rates. But keep in mind that inflation will devalue your money. So a 6% interest for your time deposit will translate to 2.5% after inflation. On top of that, you will have to pay a 15% income tax. In the end, you are only earning a paltry 2.3%.

3. Government Bonds : The safest! You’ll earn ± 6.5%, but be prepared to pay a fee

If you want to play it safe, you can plow your money into Indonesian government bonds. The principal and income are guaranteed by the government and the bonds will always pay off in full at maturity. The expected yield of a 10-year-old bond is at 6.8%. If you subtract the 3.5% inflation rate, you arrive at the real return – approximately 3.3% annually. So for every Rp. 100,000 that you put into government bonds, you will earn about Rp. 3,300 one year later.

If you want to buy these bonds you have to go to an asset management company such as DanaReksa and Schroder or ask your bank if they can buy it for you. Here is the catch: you will have to pay a commission, which may cost around 1%. So you now end up with a 2.3% return. Factor in the 15% income tax, and your return edges down further to 1.95%. Does this sound good to you? I didn’t think so.

4. Gold : At a 10 year high, it’s very risky!

If you buy a gram of gold today it should cost you just under Rp. 500,000. Gold is often measured in troy ounces (oz t), and the price of 1 troy ounce (31.1 grams) of gold today is Rp. 15.4 million.

You would buy gold today and keep it until the price is high and then sell it. If you are looking to buy gold you can go here or here. These brokers will probably quote a slightly lower price and they can also keep your gold for you to keep it safe.

Over 2016 the price of gold has gone up and now down again.

However, if you look at the last 10 years, the prices of this yellow metal have only climbed higher. And it is difficult to forecast what the prices will look like over the next 2-3 years. Some panicky friends of mine think the third world war is going to break out with Donald Trump as the US President, and they want to buy gold. But then again we can’t be really sure. And I prefer not to panic.

So my recommendation is not to buy gold, unless you really know about this shiny stuff.

5. Bitcoins : Very very risky, but prospects are good

Bitcoins are a complex and interesting topic. Interesting because the blockchain and the best known blockchain currency: the Bitcoin, is now being researched by very serious players like Swift, Paypal, Alibaba, JP Morgan, etc.

Based on the chart below, from Feb 2012 to Feb 2017, you can see that the Bitcoin to USD exchange rate is close to its all-time high. This does not mean it will stop there.

If you are willing to take the risk, bitcoins could be a serious investment option. You can buy bitcoins today, and sell them again in one or two years, just like what you would do with gold. Today one Bitcoin is worth just over Rp. 16 million. You don’t need to buy one whole bitcoin; in fact, you can buy just 1% of a bitcoin for around Rp. 160,000, but that wouldn’t be worth your while.

To buy a bitcoin you will need to open a Bitcoin wallet. For Indonesia, the most convenient bitcoin wallets are BITX or Blockchain.info. With these wallets you can buy and sell bitcoins. Just remember to sell when the price has gone up to around 7% or more than your buying price, then you have at least done better than inflation + tax + the time deposit rate + the transaction costs of buying/selling bitcoins. So in one year if the bitcoin price is +/- 7% higher or more you may consider selling it, if you want to earn more than the other options above. But remember, it is risky!

6. Shares on the Jakarta Stock Exchange : Needs time, strong stomach but returns can be good

The Jakarta Stock Exchange has 535 companies listed for you to invest in. Of these about 33% or 170 are not trading publicly. So there are about 350 companies for you to choose from. You will therefore need a lot of time and know-how to research which will potentially give you high returns. If you decide to buy shares you will have to go through a broker. Or even easier, you could buy them in mutual funds (see below).

Last year the Jakarta Stock Exchange Composite Index (called the JCI), a major stock market index which tracks the performance of all companies listed on the Indonesia Stock Exchange, went up by 14%. It would have been a good year if not for the fact that in the previous year, the index fell by about the same amount. Had you had invested in stocks, you most likely would have suffered a small loss over the past two years, instead of gaining profits. Stock trading can be a roller coaster ride, and you will need to have the time and stomach for it. If you have ever been to a fair or a carnival with a cakewalk game – that is what the stock market feels like.

7. Mutual Funds : Mixed results, but generally a safe bet

A mutual fund is like a basket of investments — shares, bonds, securities or any combination of those that you invest in collectively. You can always ask a specialist to invest your money into mutual funds and have them manage your investment for you.

These funds are usually made up mainly of stocks of domestic and foreign companies, so the returns tend to be affected by share prices in the stock market. Mutual funds are, nevertheless, less risky than individual stocks so it helps you sleep better at night, but you still could lose your money.
If you want to look into mutual funds here is a list of the 50 best Indonesian funds in 2015. To buy them you will need to contact one of the fund managers / brokers.

8. Land & Property : Too big to handle now

Thinking about investing in and working towards a portfolio of real estate? First of all, you need to be prepared to shell out at least Rp 2 billion. You will also need to spend a few weeks, maybe months, to find the right land or property to invest on and get the whole purchasing process done. For most people, this is not an option.

9. ‘Deus ex Machina’ – Renting out cars & motor bikes

Here’s a popular way of growing savings in Indonesia: buy a car or motorbike and rent it out. Say you buy a new motorcycle for Rp 20 million. Ideally, you can rent it out for Rp 400,000 per month, meaning it will take some four years to earn your initial capital back. Or if you have deeper pockets, you can opt for a car, say it costs Rp 140 million, rent it out for up to Rp 500,000 per day and have your money back in 280 days.

Of course these calculations only apply in a super ideal condition in which you rent out your vehicle 7 days a week, 365 days a year, and this is almost always not the case. Using a more realistic calculation, you would probably start making a profit from your car on the third year of renting it out. You may even be able to generate a return of approximately 20% per year, which is good. But don’t get into an accident !

10. Online lending : New, upcoming, easy but read the small print !

A new phenomenon in Indonesia is online lending. This is also called P2P or crowdfunding. Companies like Mekar, Amartha, Investree, Koinworks and Modalku offer people like you and me more than 10% per year for lending your money to small businesses. Their websites claim that you can earn up to 20% per year, with 9% being the lowest earnings. The table below gives an overview of the returns and the risk.

To be able to lend through these websites, you will need to share your National ID (KTP, Kitas, Passport) with them when you register. Then you will have to make a bank transfer every time you purchase a loan. It is, therefore, almost as easy as buying on Bukalapak or Tokopedia.

Only one platform explicitly guarantees your investment. That is Mekar.id. The others talk about a reserve, but do not go as far as to guarantee you investment. If something goes wrong with them, then your money will be gone.

So to conclude, if you want to save and grow your money in 2017, your best bets are:

1. For highest return, 100% guaranteed = lend through Mekar.id and earn 10%
2. For highest return, unguaranteed = lend through Amartha.com or Modalku.co.id and earn 20%
3. Feel like gambling and experimenting? Then buy bitcoins
4. Do you own 2 cars or motorbikes? Then you could consider renting out one of them.

(Originally Published at medium.com/@thierrysanders)