Consumer Corner: What are your savings options?
While it’s always a good idea to have a rainy day fund, if you’re carrying debt, it makes sense to reduce it as much as possible in the current interest rate environment.
Mortgage rates have been tracking higher for months, but if you have money to save, you haven’t seen much value in the market. That’s starting to change.
Late last month, Permanent TSB (PTSB) became the latest bank to hike its deposit rates. The move came on the back of a similar increase by Bank of Ireland the previous week.
Daragh Cassidy of comparison and switching site Bonkers.ie believes these moves will likely put pressure on AIB to do something similar.
“PTSB is upping the rate on some of its fixed term accounts by between 0.25% and one percentage point, with a top rate of 3% now available. For example, its three-year fixed-term account will now pay 3% a year, up from 2% previously.”
For those who wish to build up a lump sum, PTSB's Online Regular Saver account is now paying 2.5% on amounts up to €50,000 in total.
This is the fifth time PTSB has hiked its savings and deposit rates since last November.
The new rates will come into effect from September 26.
Bank of Ireland’s ‘Super Saver’ account is a regular savings account that allows you to save up to €2,500 a month. The interest rate that applies will be increased to 3% from 2% for the first 12 months, before dropping back to 2% again. Balances are capped at €30,000.
The interest rates on BOI’s Mortgage Saver and Regular Saver accounts are increasing to 2%, subject to conditions.
Daragh Cassidy points out that over the past few weeks, all the main banks in Ireland have announced big profits.
He notes however that while it's great to see savings rates creep up, the returns on offer are still well below the rate of inflation. And, of course, you’ll pay Dirt of 33% on any gains you make.
There are alternative savings products of course.
While it’s always a good idea to have a rainy day fund, if you’re carrying debt, it makes sense to reduce it as much as possible in the current interest rate environment.
Daragh Cassidy again: “Paying 20% interest on a €3,000 credit card debt makes little sense, for example, if you also have €3,000 in savings that is only earning you 2% interest, and which could be used to fully clear your card balance.
If you have a longer-term savings goal, then it might be worth considering a life assurance investment policy with the likes of Irish Life, Zurich or Aviva. These products invest in a mix of stocks, commodities, property and bonds, and so provide the potential for far higher returns.
You can usually contribute to one of these policies — often referred to as managed funds — from as little as €100 a month, and your risk appetite will determine what type of fund your money is invested in. Alternatively, you can invest a lump sum starting from about €10,000 or so.
Those with a lower risk appetite should put their money into a fund that mainly invests in bonds, with only a small percentage of stocks, while those who are prepared to take more of a risk with their money can choose funds that invest mainly in stocks, property, and commodities like gold and oil.
There are many caveats attached to managed funds however. For one thing, you'll be hit hard with taxes, fees and charges, so even if markets are favourable, these deductibles will severely curtail that return.
“For example, you'll pay 41% tax on any gains you make. This is because you'll be subject to life assurance exit tax and not Dirt," says Cassidy.
"You'll have 1% of every amount that you save taken in the form of stamp duty by the Government, and you'll also be charged a fund management fee of between 1% and 2% a year on average.”
And, of course, what goes up can also go down. Depending on how markets perform, you may not get back your original investment.
For the more risk-averse, State savings products offer a viable alternative. The big advantage here is that you’re not liable for Dirt. Moreover, the National Treasury Management Agency has just announced it is increasing the rates that apply to these State savings products.
The rate on the 10-year National Solidarity Bond will be increased from 1.5% to 2.01% AER. This gives a total return of 22% over the 10 years. A €10,000 investment which would have previously seen a €11,600 return will now see savers get back €12,200.
The six-year Instalment Savings product been increased from 0.98% AER to 1.74% AER. This gives a total return of 10% over the six years.
The five-year Savings Certificate rises from 0.98% AER to 1.75% AER, giving a total return of 9% over the five years, while the three-year Savings Bond goes from 0.33% AER to 1.32% AER. This gives a total return of 4% over the three years.
The new rates will apply to all new fixed-term products taken out on or after October 1, 2023.
Finally, you could always look east. Ireland has among the worst rates for savers in Europe, but things are not quite as bad on the continent.
And one bank — Raisin — is making it easy for savers here to access the higher rates on offer elsewhere.
“Raisin pitches itself as the 'online marketplace for savings across Europe' and allows Irish savers to easily avail of the higher deposit rates on offer in Europe by signing up to its online account,” says Daragh Cassidy.
Signing up is relatively simple and only requires one online registration. From there, customers can easily choose from numerous savings accounts from banks all over Europe, and manage their accounts entirely online too.
Another option is Trade Republic, a Berlin-based digital investment platform, which offers investors easy access to buy and sell stocks relatively cheaply through its app. In addition, any cash you hold in your account, which you haven’t invested, will earn 2% interest.
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