Welcome to the Financial Column in association with Money Plus, the award winning financial services company on Bridge Street in Boyle.
Following on from last week’s question on alternatives to low deposit rates I have read a couple of articles along with a radio interview about the European Central Bank’s (ECB) quantitative easing strategy (that is, printing money) and the possible consequences for savers, depositors and for pension funds, particularly over the medium to long term.
In summary, the ECB’s programme of quantitative easing, in combination with the fall in interest rates to historic low levels, was designed to encourage investment and the use of credit, increase consumer demand by putting money back into people’s pockets, and hoping they would spend some of this. This should then result in increased economic activity and growth in the Eurozone and ultimately an increase in inflation and interest rates.
However this has yet to be evidenced or borne out and that the Eurozone area has shown little or no economic growth and little sign of inflation. Credit and investment remains tight and, as stated in last week’s article, interest rates for depositors and savers will remain low for the foreseeable future.
In Ireland, despite the negligible rates being paid on deposit accounts, Irish savers continue to increase the amounts held on deposit, with €577 million placed on deposit in April. New household lending slumped by 3.5 % in April and Irish consumers continue to pay down existing debt, repaying €1.8 billion more than was advanced in new loans in the last 12 months.
So, what are the possible consequences for savers, depositors and for individual’s private pensions over the next 5 to 10 years if interest rates for savers remain at or below zero?
If deposit interest rates continue to be low or negative over the medium term, one of the consequences of this is that it will lead to a serious erosion of people’s wealth. In addition annuity rates for pensions would remain low and people retiring risk having to buy annuities at these low rates and have their pension income locked in at those rates for the rest of their days.
What are the alternatives ?
Without wishing to repeat myself (as set out in last week’s article, we strongly recommend sitting down with an experienced and impartial financial adviser like Money Plus to identify and consider the best and most suitable options for you which provide the potential to preserve and grow your surplus funds over the medium/long term through establishing your particular objectives and personal circumstances.
An important part of this process is to find out your attitude to risk – we do this by completing our risk questionnaire with you. When we have done this we will be in a better position to look at the most suitable solutions for you.
For advice on pensions, investments and investment planning please consult Belinda McCauley at Money Plus, your local independent financial broker. Belinda and her colleagues at Money Plus, Bridge St, Boyle would be delighted to help you. Belinda can be contacted at 071-9194000/086-7847827 or by email: [email protected]moneyplus.ie.