Welcome to the Financial Column in association with award winning financial services company Money Plus.
One of the regular issues we get asked to advise clients about is in relation to the low and falling deposit rates over the last 2-3 years and what can savers do to protect their savings without taking much or any risk.
As most savers know, deposit rates are at an all time low and close to zero, no matter how long you put your money on deposit for. In some Eurozone countries, certain Banks are now charging customers for holding their savings on deposit. Two weeks ago the UK cut their base interest rate from 0.5% to 0.25% resulting from concerns over their economy after the Brexit referendum. Prior to the Brexit vote it was expected that UK interest rates would start to increase.
The medium term outlook for Irish deposit rates is that they will remain at current rates or may even fall further. The best 12 month term deposit rate for a personal lump sum of €50,000 is currently 0.9% with KBC Bank.
We believe that the principal reason that savers are holding their surplus cash on deposit is for safety and security, particularly in uncertain times.
Is this right or are there risks attached to this?
The “hidden” risk attached to current deposit rates is the risk and effect of inflation over time on your money. Look at how the cost of motor insurance is rising this year – this is adding to the inflation rate in the Irish economy.
For example, if inflation were to exceed deposit rates by 2% per annum, then in 5 years, €50,000 held on deposit would need to grow to €55,200 just to retain it’s value. Put another way the real value of your money in 5 years would be equivalent to €45,300 in today’s terms.
So what do we recommend ?
We believe that currently there are opportunities to take advantage of the low interest rate environment over the medium term through investing in a suitable diversified risk-controlled investment portfolio consistent with your risk profile and return objectives.
The best way to determine the most suitable option(s) for you and your surplus deposits is to contact an experienced and impartial financial adviser like Money Plus to arrive at a risk based solution which suits your particular circumstances.
For advice on deposit accounts and suitable investment strategies 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]