Sunday 30 April 2017

Consider the best refuge for your cash

Irish residents have about €96bn in savings accounts. If you have one of them, be sure to get a good interest rate, says Louise McBride

AS we're almost two years into the worst recession in 25 years, we've had more than our fair share of rainy days lately. So it's no surprise that we're saving almost four times as much money as we did during the height of the boom.

The interest paid by some banks on savings is as much as four times the European Central Bank rate. With the banks here nursing heavy losses however, many believe it's only a matter of time before banks slash these rates.

So where will you get most bang for your buck if you've got a wad of cash to save?

BEST HOME FOR A LUMP SUM

To get some of the best deposit rates for lump sums, try Investec, Permanent TSB, Ulster Bank and EBS Building Society.

Investec pays 3.6 per cent interest on savings of €20,000 or more -- but you need to be comfortable with online accounts and happy to leave your money in its fixed-term account for a year to get this rate. You'll earn about €550 interest (after tax) if you save €20,000 into this account for a year.

If you can lock away €10,000 or more into a fixed-term account for 11 months, Permanent TSB pays 3.35 per cent interest. By the end of those 11 months, you'll have earned about €454 in interest after tax on savings of €20,000. Make sure you know when those 11 months are up though -- if you don't instruct Permo otherwise, your savings will be automatically rolled over into another 11-month account.

If you have a lump sum of between €20,000 and €500,000, EBS's 10-month fixed savings account pays 3.41 per cent interest. After 10 months, you'll earn about €428 interest after tax on a lump sum of €20,000.

If you can save at least €25,000 for a year, Ulster Bank has a one-year fixed term deposit account which pays 3.35 per cent interest.

You don't have to lock your money away for a certain amount of time to get a good rate. Nationwide UK (Ireland) has an Easy Access Savings account which allows you to withdraw money six times a year -- and pays 3.3 per cent interest on savings of €20,000 or more.

Irish Nationwide's Instant Access Deposit account pays 3.25 per cent interest on savings up to €20,000, and Ulster Bank's Pathway account pays 3.1 per cent interest on savings of between €15,000 and €1m.

BEST HOME FOR REGULAR SAVINGS

If you can afford to save a set amount of money each month, head to Permanent TSB, Bank of Ireland or EBS, where you'll earn 4 per cent interest on monthly savings of up to €1,000.

Permanent TSB's regular saver account pays 4 per cent interest on monthly savings as long as you give 21 days' notice if withdrawing money. So if you can save €1,000 a month into this account for a year, you'll earn about €195 in interest. Don't save any more than €50,000, however, as you only earn 1.5 per cent interest on any balance over that limit.

Bank of Ireland's Dual Saver account pays 4 per cent interest on monthly savings of between €100 and €1,000. However, this rate is only paid on total savings of up to €5,000 -- any balance over that limit only earns 1 per cent interest.

EBS's Family Saver account pays 4 per cent interest on monthly savings of between €100 and €1,000. You can only withdraw from this account twice a year.

CAN I BEAT THE MARKET RATES?

If you have hundreds of thousands of euro or more to save, an authorised advisor or deposit broker may be able to negotiate a better than normal deposit rate from a bank or building society for you.

"Even though deposit rates will come down, banks are fearful of big chunks of money moving from them," said Ross Curran, managing director of Curran Financial Services. "As they operate on such economies of scale, these brokers could secure a deposit rate that is between 0.25 and 0.5 per cent higher than what's generally available."

Finance One, which runs the useful internet site www.irishdeposits.ie, is a deposit broker. "As well as negotiating better interest rates for clients, if the amount of money being saved is large, we can also negotiate on conditions such as the flexibility and term of the account," said Harry Slowey, director of Finance One.

CAN I POUR MY SAVINGS INTO AN OVERSEAS ACCOUNT?

If you've been soaking up the sun in Australia recently, you're unlikely to have seen the inside of their banks. Yet some Australian banks pay twice the interest that you'll get on your savings in Ireland. National Australia Bank for example pays up to 7 per cent interest a year on money held in its Australian term deposit accounts.

Closer to home, you could be able to get deposit rates of 5 or 6 per cent from particular banks in the European Union. In the Netherlands, for example, ABN Amro pays 6 per cent interest on certain savings accounts.

If you track down a savings account in the EU which pays a lot more interest than you'll get in Ireland, there should be nothing to stop you putting your savings into that account.

"Being resident in Ireland is not an impediment to opening an account in an EU country," said Felix O'Regan of the Irish Banking Federation. "If, for example, you wanted to open an account in Germany because it offered a better rate or was convenient, you can do so as long as you can provide identification and proof of residence. You wouldn't have to be living in Germany to open the account."

Opening an account outside the EU could be a bit more difficult however. "Once you move beyond the EU, it could be trickier to open an account," said O'Regan. "The same account opening principles will apply outside the EU as within it -- but not with the same ease and consistency."

If you decide to save money with an overseas financial institution, make sure it is above board and regulated. Otherwise, you could be simply kissing goodbye to your money.

A variety of reputable internet sites, such as stockbrokers.barclays.co.uk, allow you to invest in international savings and investment products.

BE ON YOUR GUARD

Regardless of whether the bank you intend to save your money with is an overseas or Irish one, check out its credit rating -- a measure of how financially secure it is.

"Don't forget about the financial security of your bank or building society," said Michael Kiernan, chief executive of the online authorised advisor, www.myadviser.ie. "Banks and financial institutions can fail, so their financial security should be part of your assessment."

When trawling the market for a good savings account, be wary of headline interest rates. "Headline rates are often shown for the whole term of the account rather than the annual rate," said Kiernan. "An example is Bank of Ireland's two-year fixed term reward account. In the adverts, this account has a headline rate of 5.5 per cent interest but this is over two years -- so the annual rate is actually 2.71 per cent."

Even if you do secure one of the best savings interest rates on the market, keep an eye on the rate as within a few weeks or months, it could suddenly change to a fraction of the one you signed up to. "If you've got a 30-day or 21-day notice savings account, watch what the rate rolls over to after those 30 or 21 days," said Curran. "You may find that the rate has dropped."

You can check the latest rates easily on www.itsyourmoney.ie or www.irishdeposits.ie. If you have a lot of money on deposit with a bank, be wary of any approaches for 'free financial reviews'. "These reviews are really just the bank wanting to move you into an investment bond or product where you'll end up paying commission," said Curran.

WHAT ABOUT LOW-RISK ALTERNATIVES?

If you are looking for investment products that are slightly riskier than deposit accounts, bond funds and low-risk absolute return funds could be worth considering, according to Kiernan.

"Investment annual charges for bond funds can be as low as 0.5 per cent for amounts above €50,000," said Kiernan. "The objective of absolute return funds is to deliver a positive return regardless of market movements.

"They are not without risk and you need to know how each one works to know if it suits your needs -- they are not all the same. Friends First have recently launched a fund which is low risk, whereas the funds available from the others would take higher risks."

Sunday Independent

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