Welcome to the Financial Column in association with Money Plus, the award winning financial services company on Bridge St. in Boyle.
Deposit Rates are at or near zero – How can I protect the value of my savings ?
Interest rates on Deposit Accounts continue to pose a real challenge for savers. This is now the most significant issue on the minds of our clients. As a result, we thought that we would share the brief with you.
Interest rates on deposit accounts are close to zero. In some European countries certain Banks are now charging customers for holding their savings on deposit. Last week Bank of Ireland announced that it is going to charge depositors with more than €10 million a rate of 0.4% for holding their deposit. Recently 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. The interest at the end of 12 months is €265.50 or 0.53%, after 41% DIRT is deducted.
Rates on Post Office savings products have also fallen with 3 year rates at 0.33% per annum tax free. On a sum of €50,000 the interest earned per annum is €165. It is becoming increasingly challenging for depositors to maintain the value of their savings, let alone earn some interest.
As experienced financial advisers we believe it is important that our clients understand that all investment strategies carry risk, even deposits.
The “hidden” risk attached to current deposit rates is the risk and effect of inflation over time on your money.
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 its value. Put another way the real value of your money in 5 years would be equivalent to €45,300 in today’s terms.
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 a client’s risk profile and return objectives.
If you would like to discuss how your savings could be generating a higher return 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].