Spend, save, invest or lend - It's time you started making those savings work for you
While mortgage holders are fretting over a possible rise in interest rates signalled by the European Central Bank, savers are hoping it will materialise, as they’ve been sitting on non-performing money for years now, afraid to move or spend it in the austerity years but knowing it’s earning nothing while they wait.
But as the economy improves, we are finally seeing some movement in the almost €100bn sitting in Irish bank deposit accounts and State funds such as the post office and prize bonds. It’s an extraordinary figure, owned by ordinary people who are trying to manage future rainy days.
The latest Bank of Ireland/ESRI Savings Index shows a change among the over 50s who are fed up with zero interest; they’ve had enough and are saving less, and spending more.
The proportion of people saving regularly fell to 46pc in March, its lowest level since the index began. It was most visible among older age groups, who want to spend the fruit of their labours rather than whittle it away in a deposit account.
Asked whether they had saved regularly in the last year, 53.5pc of under 30s said yes, while just 42.2pc of over 70s did. Of the amount they were saving, the young people said they felt it wasn’t enough, while 62pc of seniors were happy with their choice.
Spending also increased during the snow storms, as boredom took over and online shopping increased.
So, what is the best outlook for money today and what should you do with it next?
It might sound counter-productive, but spending may be the best use of your savings. At the moment, they’re being eaten by inflation, meaning a negative net return. The €5,000 you have today won’t buy €5,000 worth of goods next year. So, if your car needs a change, or you want to upgrade your home or put in new windows, now is a great time to do it.
Investments are different from savings. They are medium to long-term (at least 10 years) and carry a risk because they usually involve stocks, shares or property. But with good advice from a financial broker, who takes your risk profile into account, they can earn far more than deposits over the years. If you have money you don’t need soon, and have put by a “rainy day” account for yourself, consider talking to a professional about investments.
Keeping money on deposit is necessary for some things: you’re saving for a house, or need the cash next year. But even with deposits, you can earn more interest by being a little clever. Avoid “instant access” accounts as they’re the worst value. If you can afford the wait, put the cash in a 30-day access account, or even a fixed-rate one-year account. You’ll get a better rate. PTSB gives 1pc on its 21-day access account, while BoI offers 1.2pc, and EBS offers 1.75pc on a one-year fixed for savings of €100-€1,000 per month, up to €12,000.
Crowdfunding has become very popular for small investors, with firms like Linked Finance providing portals for small savers to get involved in lending money to vetted SMEs and other businesses. You can start with just €50, and pick a single business, or an industry with interest rates from 6-17.5pc offered, depending on the risk attached. The fee is around 66c for every €100 loaned and you can monitor loan repayments online.
It is virtually guaranteed that any loans or credit you have is being charged at a higher interest rate than your savings are earning. Holding on to a debt while juggling savings doesn’t make sense, so paying it down is a good idea. You’ll free up the monthly repayments, and improve your credit rating.
Start with the highest interest- bearing debt, and that’s usually your credit card. Diverting savings to it is a good use for it, clearing the loan.
If you have a personal loan, for a car for example, enquire whether you can pay it off early – if it’s not a fixed rate, banks and credit unions will allow this.
You’ll free up the monthly repayment to put into more savings.
Giving money to charity is even better value than the “feel good” factor. For donations over €250, a registered charity (eg a local school), can claim back the tax you paid on the cash. It’s a great way to help a favourite cause.