Savers losing out as stock markets rally, says adviser
Published 25/10/2012 | 05:00
SAVERS are losing money by leaving cash in deposit accounts in banks, missing out on a strong performance by stock markets in the past year, an investment adviser has argued.
Households have around €92bn in bank deposits, with most of this money earning so little in interest that it is actually being eaten away by inflation.
This means that savers are actually making losses by putting cash into low-interest accounts in banks and building societies, financial planner Marc Westlake of Dublin-based investment firm GoldCore said.
A clatter of bad news, including a feeble economic recovery, huge budget deficits and fears over the euro, were prompting many to be overly cautious, he said.
This meant that many people were being "recklessly conservative" and were losing out as a result.
But stock markets have rallied sharply around the world in the past few months.
In the year up to September, 44 world share price markets had a positive return, with 14 of these rising by more than 30pc, as measured by the Morgan Stanley Capital Index.
The Irish stock market is up 11pc in the year so far, with a rise of 19pc over the past 12 months.
In the US, the main index for shares is up 14pc this year, and has risen by 16.7pc in the last year.
Mr Westlake said despite these healthy returns for stock markets many investors continued to flee from equity funds in August.
Instead, investors worldwide bought billions of euro in bonds, as these are considered safe. However, the safer bonds offer very low interest rates.
Mr Westlake said cash deposits in banks might offer a sense of security but once tax and inflation are taken into account, many bank accounts are now paying negative returns.
The average demand deposit account is now paying just 1.79pc, information issued yesterday by the Central Bank shows.
But inflation figures out earlier this week show that prices rose by 1.6pc in the last year.