The definition of the word safe in the Oxford English dictionary is free from risk. In light of asset performances in recent years, there is not a single investor who could state their investment is risk-free. Between pandemics, the rising cost of living, inflation, oil crises, earthquakes, floods, famines, wars, the world is constantly changing with regular economic challenges every day. Even cash is not risk-free… inflation eating away at whatever safety there is in cash. Investors want a return on their savings.. and they want to preserve and grow.
With € 155billion today in Irish deposit accounts earning virtually nothing after DIRT tax (currently the very best demand account is 0.75% from An Post Money – 0.5075% after DIRT tax) where can the cautious investor obtain best rates AND protection at the same time ? John Lowe of MoneyDoctors.ie looks at the options.
Staying “liquid” or having a Rainy Day Fund is imperative for three very good reasons
- Emergencies – your boiler needs replacing…
- Sudden income loss – no bonus this year
- Investment opportunity – a house deposit…or buying that bottle of Romanée Conti (1995) for € 40,000 – from the K Club cellar…the 1945 bottle has the world record price for a bottle of wine – $ 558,000 !
Therefore, savings are key to the next boom. The question is where to invest in the meantime if you have savings and what to do if you don’t.
Investors are safe up to € 100,000 per person per institution under the Deposit Protection Scheme – this includes credit unions and building societies (EBS) If you happen to win the lotto or come in to a windfall, you can have up to a € 1,000,000 protected for up to 6 months until you find a home for your windfall.
Cash – remember the three deposit categories
- Demand accounts ( make withdrawals at any time )
- Notice accounts ( you have to give notice – from 7 day, 30 day etc )
- Fixed interest rate accounts ( you MUST invest for the period agreed – no withdrawals are allowed. Periods from 1 month, 3 months, 6 months to 1,2,3, 5 and 10 year fixed )
Amounts vary from a minimum € 1 to € 100,000 and in some cases a maximum of € 1,000,000 to no maximum. Rates are still low with recent interest rate rises not reflected in deposit rates. But you do still need to shop around. If you have the time and patience, you could open a myriad of accounts in different institutions availing in many cases of the € 100K threshold policies of these deposit-takers.
This includes the European banks that offer in most cases better rates than Irish deposit takers but caveat emptor… generally most of these banks only deduct 18% withholding tax and it is let up to the integrity of the investor to make a Revenue return of that 15% differential as DIRT tax in Ireland is 33%. Best European rates ?
- BluOr Bank (Latvia- credit rated A) 3.65% fixed 1 year
- CA Auto Bank (Italy – BBB) 3.55% fixed 1 year ( no withholding tax )
- Klarna (Sweden – AAA ) 40% fixed 1 year ( no withholding tax )
Best Irish long term deposit is National Treasury Management Agency’s ( an Irish government appointed body that looks after all government monies ) 10 year National Solidarity Bond ( available in post offices or online ) offering 22% tax free on maturity – equivalent to 3% gross each year…minimum is € 500 and maximum € 120,000 per person. Capital and interest are guaranteed by the government. NTMA also offer a National Savings Certificate ( 9% tax free after 5 years – equivalent to 2.6% gross per annum ) and a National Savings Bond ( 4% tax free after 3 years – equivalent to 1.97% gross per annum )
The most important feature of the NTMA offerings (includes Prize Bonds – a joint venture with FEXCO the Kerry group… €4.4billion currently invested by Irish investors ) is that all investment is guaranteed by the Irish government.
REGULAR SAVER ACCOUNTS available with all Irish deposit takers pay slightly better rates if you can commit to a minimum of € 100 per month up to in some cases a maximum of € 1000 per month – the best rate in this category is AIB Bank and EBS at 3% ( 12 month savings ) You are generally only allowed one withdrawal per annum. If you do not have a savings plan, I recommend you start one now. A great discipline irrespective of the interest rate offered. Bank of Ireland offer a 12 month fixed rate of 3% capped at € 30,000 and then drops to 2%.
The stockmarket is cyclical and can change from year to year. The trick is timing – buying in at the lowest price and cashing out at the highest, or when you want to retire. Ahh, but you would need a crystal ball I hear you say. Some of the stockbroking houses have incredible research facilities and can give you bell, book and candle on your preferred stock and the way it might move. However they are not psychics and your decision when to buy or sell can make or break your investment.
The decision, albeit an informed one perhaps, is yours and while you may delegate that decision to your stockbroker ( called discretionary ) you are in essence giving your stockbroker authority to gamble with your money AND if you suffer losses, excuses as to how it happened ! James Goldsmith is famed for his comment If you see a bandwagon, it’s too late while the world’s richest man Warren Buffett stated the truth.. the stockmarket is a mechanism for transferring wealth from the impatient to the patient ! Still I like the new breed of managed fund – the best vehicle to access the stock market … easy to understand and simple to operate – offered by most of the Irish insurance companies. Email me for details.
Taking the blunderbus approach where you spread risk as much as possible across a whole range of stocks, bonds, managed funds and such like depending on how risk – averse you are, will minimise that risk. The prudent investor will not have all those eggs in the one basket. Advice again is so important and cannot be stressed enough.
While all investment is risk, Walt Disney summed it up in one sentence “All our dreams CAN come true if we have the courage to pursue them” – he never sat on his assets.