Friday 22 February 2019

Make those savings work for you

We're putting our money away - but we can do more to make a return on it

Saving for a rainy day: Irish people have €103bn on deposit
Saving for a rainy day: Irish people have €103bn on deposit
Sinead Ryan

Sinead Ryan

Economic theory says when you have a booming economy and low interest rates people do two things: spend and borrow. But people are not economic theories.

Sometimes (quite often actually) they do the exact opposite to what economists expect. Go us!

Even though we are all earning a little bit more these days, jobs are plentiful and borrowing is cheap, we are still hoarding cash as if 'Austerity Round 2' arrives on Tuesday.

Call it a recession hangover, but latest Central Bank statistics show €103bn (that's €103,000,000,000) on deposit from ordinary families in post offices, State savings and bank accounts; instruments designed to give practically no return whatsoever. And it's going up. Instead of moving money around the economy and buying cars, washing machines and holidays, we're holding onto our cash. That we're doing so while also holding onto expensive borrowings seems on the surface to make no sense. But let's strip away the 'theory' and look at the reality.

Irish banks hold €12.3bn more in household deposits (ordinary people's money, not corporations'), than they have loaned out to those same people. It's the largest gap since 2008.

This week I'm looking at ways to store your cash.

With that level of deposits, safety seems to be the key requirement of savers.

It's almost impossible to get a return when rates are hitting the floor, but the panel below shows what is available for your money. Here are a few other tips, and options:

How to save

Most of us believe saving is a good thing, right? And it is.

But the real question is why you are saving. It's always worth splitting your savings into short, medium and long term vehicles, rather than lump it all together aimlessly.

Short-term savings are simple deposit accounts, easily accessible. Think emergencies, holidays, ongoing household expenses, etc.

Medium-term savings are for things like a car change, education funding or other big ticket items.

If you have three to five years for this, stick with deposits too, although you may want to consider State Savings to tie it all away tax free. NTMA offers 3.5 and four-year bonds and five-year certs for this purpose (www.statesavings.ie).

Long-term savings are for retirement. You need specialist advice, can afford to take a risk with it, and it is immensely tax efficient.

Risky business

If you have disposable income, or can take a punt on your savings over a longer term (five to 15 years), then there are other options to deposits.

For investments, many people look to insurance companies first if they don't have the experience or knowledge to deal directly in the stock or property markets themselves.

These unit linked products are riskier than cash, but many are designed in a careful portfolio to minimise this.

Use a broker (see www.brokersireland.ie for a local list), who are either paid a commission by the insurer, or charge you a fee for advice, which will then be totally independent.

Become a lender

They say the best way to rob a bank is to own one, and it's surprisingly easy to get into the business! Peer-to-Peer (P2P) lenders use money from small investors (as little as €50) and lend to small businesses they have vetted.

You can pick one industry or spread your cash over a range. Charges are low-ish and while there is a risk, good management minimises this and returns are higher than a bank. Consider LinkedFinance, Grid Finance or Flender, supported by rugby star Jamie Heaslip.

Pay down debt

There's no point in having a loan on a credit card costing 20pc with savings earning nothing. Pay one off the other.

Irish Independent

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