Consumer Corner: I have some money to invest - what's the best thing to do with it? 

A penny saved is a penny earned - but where do you invest it?

Planning on saving or investing some money in 2023 and not sure where to put your money? Sometimes it may seem like the best place really could be under the mattress but here check out some of the best places for your rainy day fund. We also ask if investing is only for rich people - or can anyone do it?

Irish people have for a long time been acknowledged as a nation of savers and our funds are held on deposit in banks, building societies and credit unions, with most savers receiving little or no interest on their savings. The recent ECB interest rate hikes have done very little to raise deposit account rates which are still very low. Despite this we are a nation of low risk takers when it comes to savings.

Recent research from iReach Insights on behalf of Aviva found that deposit accounts are the most popular savings option in Ireland with more than 50% of respondents saying they had a deposit in a bank or a local credit union. Men were marginally more likely to have a savings plan from a life insurance company or investment manager at 8% than women at 4%.

Stephen Rice, Aviva Life and Pensions Ireland said the world of savings can be a little confusing at times, particularly when you look at the range of savings and investments products available in the market.

“At the end of the day, we all need to plan for the future in some shape or form. Ideally, we need to hold some funds on deposit with a general rule of thumb around six-months income. These funds are there to provide a financial cushion in the event of something unforeseen happening and these savings can help to ride out the storm. However, savers should look to get a return from their savings when they don’t need access to the funds over the medium to longer term,” he said.

A good starting point before making any savings or investment decision is to fully understand your current financial situation, considering how much disposable income you have and what level, if any, of short-term debt you have.

Secondly, you need to consider what your financial goals are, be it short, medium or long-term.

There are lots of different savings products available in the market.

One of the most popular is an “easy access account” or “demand” account which means that you can add to and take money out whenever you want without paying a fee or penalty.

Then there’s a “notice savings account” where you will need to tell your bank or other financial institution in advance that you want to take your money out. This could be useful for people easily tempted.

Also on offer is a “fixed-term savings account” where you lock your money away for a certain period, which can be anything from months to years.

You could also look at a savings plan with a life or investment company.

“Of course, there is a whole world of investments out there. These may be a better option if you’re saving for bigger long-term goals such as your retirement. Here your monthly savings will be invested in funds that invest in assets like company shares,” said Mr Rice.

“Remember, you don’t have to pick just one type of savings product, many people have both money in deposit accounts as well as stock market or other investments reflecting their different time horizons and objectives.” For people looking for short term savings, deposit accounts are great as a rainy day fund. For medium term savings then notice savings accounts and savings plans from life companies or investment managers linked to stock market returns are a good way to go.

For those looking for long term savings however, like a retirement fund or a child’s college fund, generally the best way to go is with a pension plan or investment linked to stock market returns.

Historically, over the medium to long term investing in the stock market has typically generated greater returns than leaving your money in a savings account over a similar timeframe, according to Mr Rice.

“As a rule, the longer you leave your money invested, the better.” Before deciding to save or invest your money it is important to do your homework. You have worked hard for this money so you want to put it somewhere that suits your needs.

A deposit account will be great for keeping your money safe but your money won't make much money. With investments your money will work for you but you are certainly taking more of a risk.

“Many experts recommend using both strategies together rather than one over the other. You can segment your savings into different pots to meet different financial goals,” said Mr Rice.

It is also worth remembering too that you generally pay fees and taxes on all types of savings accounts. With deposit accounts, you pay DIRT or deposit interest retention tax of 33% on interest earned while you may pay an exit tax on any returns you make on a savings plan with a life company.