Consumer Corner: Have a bit of extra money? What's the best thing to do with it each month?
Consumer Corner: "It will pay to shop around for a savings account with good interest rates and currently there are rates of up to 4% on offer depending on the provider and whether you want instant access to your savings or if you are happy to lock your money away for a fixed period. Bonkers.ie has a handy savings comparison tool that can show the comparisons in the market."
It might not happen a lot but if the opportunity does present itself where you find yourself with a little extra money, it could present questions around what the best thing is to do with this extra money?
For anyone fortunate enough to have some extra money at the end of the month we have compiled a list of top tips on what to do.
If you do happen to get a bonus at work or get some money from an investment you made, anything you earn here will likely pale in comparison to the interest you’re being charged on your debt. This refers to the likes of personal loans for something like a car. The exception here would be a mortgage, as the rates are much lower on a home loan. Daragh Cassidy of Bonkers.ie says that if you have any credit card debt or personal loans, make sure to pay these off first before you start building up savings.
The rule of thumb on this is that your rainy day fund should be the same as six months of your net income. For example if your take home pay is €3,000 each month then ideally you should have around €18,000 in an easy access savings account for emergencies. Mr Cassidy says that your first objective should be to build up an adequate emergency fund with any extra money you have.
This action could result in savings of thousands of euro if you did have some additional money that could be used to do it. Overpaying on your mortgage also means you will be mortgage-free quicker. Mr Cassidy warns however that before you do this make sure you have a rainy day fund and that you’ve paid off other existing debt first.
It will pay to shop around for a savings account with good interest rates and currently there are rates of up to 4% on offer depending on the provider and whether you want instant access to your savings or if you are happy to lock your money away for a fixed period. Bonkers.ie has a handy savings comparison tool that can show the comparisons in the market.
If you have a longer-term savings goal, then placing your money into a life assurance investment policy with the likes of Irish Life, Zurich or Aviva, which will invest in a mix of stocks, commodities, property and bonds, could be a good option as it will 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 appetite towards risk will determine what type of fund your money is invested in. Alternatively you can invest a lump sum starting from around €10,000 or so,” says Mr Cassidy.
The main advantage of investing with the State is that you won’t have to pay DIRT which is currently 33% on any returns that you make. However, the experts say that the rates on offer are still pretty meagre so don’t expect a windfall. The ten-year National Solidarity Bond on sale at the moment offers a return of 2.01% interest a year or 22% in total over the entire ten-year term. “Placing your money in a five-year Savings Certificate will get you 1.74% a year or 9% over the five-year term,” says Mr Cassidy.
If you have any excess savings that need a good home, then a pension is no better place. Most experts recommend that you need a pension of at least half your pre-retirement income in order to live comfortably in your golden years. The average full-time wage in Ireland is around €48,000, this means that according to experts you'd need an income of at least €24,000 in retirement, if not more.
The current max State pension is just over €14,000 a year, though you could be entitled to less which means most workers can expect to experience a significant drop in their living standards unless they make their own provisions for their retirement years.
“The good news is that saving into a pension is one of the most tax-efficient things you can do with your money. You won't pay any tax on your contributions up to certain limits while your savings will grow tax-free. You can also draw down a tax-free lump sum of 25% of your pension pot upon retirement,” says Mr Cassidy.
“If you're already saving into your own pension through your job you can either increase your monthly contribution or you can easily make a lump sum 'top-up' or what's called an additional voluntary contribution (AVC).”
CONNECT WITH US TODAY
Be the first to know the latest news and updates
