In an ever-changing financial landscape, knowing where to save your hard-earned money is more important than ever. The fact that €150billion remains on deposit in Irish bank accounts shows that savers are looking for alternatives for their savings.
When it comes to looking for a home for your savings it will depend on what the purpose is for the money. If you are saving for a house deposit for example that you may need to withdraw any day, it's a good idea to keep this in a deposit account that doesn't require notice. Bank of Ireland offer a Mortgage Saver Account which offers a bonus of €2,000 if you save more than €200 per month for a period of 6 months and have at least €5,000 saved by the time you drawdown your mortgage.
Besides that there is not much incentive to save with Irish banks at the moment and with ECB rate cuts on the horizon it is unlikely that we will see any improvement. To find the best interest rate for your savings you need to look at the AER (Annual Equivalent Rate) because this can cause confusion. For example an account might offer a return of 6% if you save your money for 3 years but the AER which is the annual rate of interest/return is 2%; this is not as attractive and knowing this allows you to compare it easily to alternatives on the market.
Online bank Trade Republic are offering an annual rate of 4% instant access at the moment for deposits up to €50,000 but if you're looking for a bricks and mortar bank the best is 0.25% which isn't worth your time after you've paid the DIRT on the interest! Permanent TSB will give 3% if you tie it up for 3 years and AIB will give 2% if you tie it up for 2 years. One of these may be suitable if you are saving for short term goals like a wedding or home improvements.
If you are a long term saver with for example small children and want to start saving for their future needs; college, wedding, mortgage deposit, your savings do not belong in a deposit account. You can give this money opportunity to grow by looking elsewhere.
An Post offer State Savings products which have some great advantages;
You can save child benefit directly into the scheme so it never hits your account.
AER of 2% if you save in the 10 year solidarity bond
No DIRT Tax to pay on the interest because it is a government scheme
However you could be leaving behind greater returns by leaving your savings with An Post for the long term. The average stock market return is about 10% p.a. for nearly the last century, as measured by the S&P 500 index. In some years, the market returns more than that, and in other years it returns less. You can invest easily through a fund which allows you to save on a lump sum or monthly basis. These funds are available in varying levels of risk in line with your appetite and capacity for risk. The instinctive response for most is that they want to be sure they are not losing the money they are investing, but the only way to do that is to lock it into a cash fund where it will neither gain nor lose value – although you will be worse off due to inflation and any fees charged.
In truth you need to take risk to benefit from this sort of investment but that doesn't mean you have to be reckless; the ideal fund will be fairly well diversified geographically and across different sectors and assets classes – stocks, property, bonds etc. Ideally at least somewhere in the Medium or Medium to High risk bracket in order to give your investment the best the best chance to grow.
Working with a financial planner can help manage this investment over the long term to ensure you reach your goals and help you stick to your plan. Our Specialist Investment Advisors are available if you are ready to explore your options. You can book an investment consultation by clicking here.