This guide has been written for people who have a sum of money to invest.
*This is for informational purposes only, and you should get proper advice from a financial broker. (You can start by completing the risk profiler questionnaire below).
The Irish savings market is gradually emerging from a turbulent few years. Fears over the euro’s future, the strength of banks and the sovereign guarantees attached to them have driven savers to take moves to protect money on deposit.
Much of the concern surrounding the security of deposits has abated over the last two years. For depositors however, the improved banking landscape, the threat of deflation and the lacklustre economic outlook has led to a considerable reduction in ‘deposit interest rates’.
Back in October 2011 you could have got an interest rate of up to 4.25% on money put into a 12-month fixed deposit account. Today, the best rate you’ll get is 2.3%. The tax paid on savings interest has also rocketed in the last few years- from 27% in 2011 to 41% today.
This has eaten into the returns you can expect when you put money on deposit. If you put €100,000 on deposit for a year today, you can expect to make a return of up to €1,357 but remember three years ago, you could have made €3,102.50.
So the question you should be asking yourself now is, what are the ways that you can be more proactive with your ‘savings’ .
Herewith a few ideas that I have outlined below that may be of interest to you.
1.Shop around the banks
The current-market leading 12-month deposit interest rate of 2.3% is not available in all institutions and more often than not savers are accepting much lower rates.
You can easily check the deposit rates paid by the various banks on sites such as www.bonkers.ie or www.consumerhelp.ie or indeed contact us, your friendly Financial Adviser/Broker here!
2. Longer term interest rates
Consider the longer-term deposit rates being offered by some institutions. Interest rates are expected to fall further in the short term so longer-term rates offer you the chance to secure a reasonable interest rate before they do.
3. Deposit Guarantee Scheme
Bear the Deposit Guarantee Scheme in mind if you have hundreds of thousands of euro to put on deposit. Under this scheme savings of up to €100,000 per individual per institution are protected. By spreading your savings across a range of institutions, you’ll ensure your savings are guaranteed by the state.
4. Safety of Deposits
Check the credit rating of the company you are considering saving your money with. Credit ratings are an indication of the credit worthiness of a particular institution and how secure your money is if held with it.
5. Risk vs Return
Weigh up the risk and return of any deposit or investment product you are considering. For some savers, security is more important than a good rate of return!
Assess your priorities and take an informed decision so that you achieve a return you are happy with, without taking a risk you are uncomfortable with.
6. Keep an eye out for account maturity date
If your account matures, know exactly when it will do so and what interest rate will kick in at that stage. Banks frequently roll maturing deposits at rates lower than their highest available so by staying informed, you can prevent this happening.
7. Beware the flesh-eating inflation virus!
Remember when you put your money into a straightforward deposit account, there is no risk of losing any money invested ins such accounts however it is important to note that inflation will eat into the value of your savings over time.
8. Educate yourself as well as getting independent advice
Whilst some financial brokers and advisers might prefer you to be ignorant about your finances, the reality is that reputable brokers actually have a long term interest in encouraging you to be financial product-literate.
In this way we can facilitate a healthy transfer of needs-analysis and strategic advice.
9. Keep a cool head!
Be cautious about chasing large returns in certain types of investments as these always carry higher risks! When chasing the ‘goose that lays the golden egg’ remember to get the proper professional advice and avoid the pitfalls of the last 10 years.
Lessons need to be learned from past experiences !
10. And finally…
Now you can complete this short questionnaire and get personalized feedback on investment options on a risk vs return basis.