Did you know that in the 12 months since the start of the pandemic, Irish deposits have actually grown by €36 billion. They now stand at a whopping €249 billion. Household deposits alone have grown by over €13 billion in the same period to now stand at €123 billion (Source – Central Bank of Ireland). So what? you might well ask. That is a hell of a lot of money on deposit at a time when interest rates have never been lower. Have you ever stopped to think of how much a billion dollars is? Well, if you were to spend €1,000 a day, every single day since the time Jesus was born right up until today, you still wouldn’t have anything near one billion dollars spent.
As record amounts of money sit idly on deposit, the interest rates we are receiving from banks have never been lower. Most everyone in the country knows smaller household deposits are receiving 0% returns on their deposit accounts. Pension funds, institutional investors, larger private and corporate with cash funds are being fleeced with negative rates around the -0.65% mark. As recently as 2012, yours truly was getting more than 5% per annum on fixed rate deposit accounts on behalf of our pension and investment clients. Unfortunately, that day appears to be well and truly gone.
Isn’t it kind of ironic then, that at a time of record low interest rates, Irish household and corporate deposits are at their highest ever levels since records began? One might be forgiven for thinking, “fair play to the banks” but there is a little bit more to it than that.
The backdrop to most of this is that the ECB simply doesn’t want us saving. They need us spending to stimulate the economy. As a result, our domestic banks are being charged by the European Central Bank (ECB) for placing deposits with them. This strategy by the ECB is unlikely to change anytime soon without a major improvement in the European economy. Here at home, with Ulster Bank’s and KBC’s recent announcements of their imminent and likely withdrawal from the Irish market, the issue for the remaining banks is only going to get worse. They face the prospect of being forced to take on some of these orphaned deposits they don’t even want, see “8 Investment Tips worth Remembering”
Are you a company director with corporate money sitting on deposit? Have you a personal or company pension or retired with an Approved Retirement Fund (ARF) with funds in a low-risk cash account costing you money? Perhaps you’re an individual with personal deposit savings. After setting aside an emergency fund (3 to 6 months income) which should always be kept on deposit, and access to other monies you may need in the short-term, you should consider the taxation of various investments.
But what are your options? Well, you could shop around for the best deposit rates on the market, but good luck if you can find anything better that 0%. As most global Central Banks are focused on growing inflation, the biggest risk of all may well be leaving your cash sitting idle. Losing value through account fees, negative interest rates and a reducing purchasing power as inflation increases the costs of goods and services throughout the economy. Linking this to my first point, imagine the amount of stuff you could have bought with €1,000 over 2,000 years ago. Inflation erodes, or more accurately destroys the true purchasing power of your money over time. see “What it’s costing you to keep your money on deposit”.
At Lifestyle Financial Planners, we have several low, medium and higher-risk investment options available, some with varying degrees of Capital Protection. Some of these options may be a good fit for a portion of your money, currently sitting on deposit. There are tax advantageous Corporate Saver and Investment opportunities for company owners and pension fund holders. There are some good alternatives for the private investor including CGT investment options for higher net worth individuals.
Get in touch with us today at Lifestyle Financial Planners to reserve your free Discovery Meeting. We can help guide you through several alternative options to cash deposits.
Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.