Updated: Jan 31
According to a recent study by the Central Bank, deposits made by households into Irish banks and financial institutions are now at their highest level since records began Oct 2020.
People in Ireland are accumulating record savings due to lockdown restrictions. The disappointing fact is bank deposits are still proving poor value for money. Although they offer individuals security and access to money, they don't offer good growth potential.
You're money will be protected by the deposit guarantee scheme up to a max of €100000 in Ulster Bank. If you've more than €100,000 and want to consider alternative options, continue to read.
Lets look at options available to Irish households today:
Option 1 - Take the portfolio approach - set up both deposits accounts and investment accounts to achieve your life goals.
The Portfolio approach to investing is when someone sets up a mix of product types (deposits and investment accounts) to achieve their short, medium and long term goals.
Each investment product brings a different level of risk, ranging from low risk to high risk. Typically the higher the risk, the higher the potential return. For example, buying individual company shares such as Tesla, Apple or Ryanair is considered a high risk investment and only recommended for experienced investors.
By diversifying across different product types this helps reduce volatility of returns and hence risk, but not to avoid it entirely.
Let's look at a real example of how Lee diversifies his products in order to reach his life goals without taking on significant risk.
Lee starts by googling financial advice Ireland and then books a video call with a Qualified Financial Advisor. A typical Financial Review takes 45mins. Lee didn't have any clear goals before the meeting and felt his disposable income each month was disappearing into a black hole.
Lee started a pension 10 years ago and has built up €40000 in value. He pays €70 each week via salary deduction.
Let's look at Lee's Investment plan after the meeting
Lee accepted the offer to have a second person present on the call. Lee also has Life Cover and protection plans in place to replace his income in the event of death or illness.
Goal 1 - Save up a €6000 rainy day fund - typically 2-3 months of net monthly income
Lee's short term goal is to save for an emergency fund. He wants €6000 quickly available for any house emergencies such as a job loss or unforseen costs. A bank deposit product is the most appropriate home for this money as it's safe and accessible quickly. His current deposit account gives 0.3% annually, although he won't make any money by leaving this here it's important for Lee to have access to this money.
Goal 2 - Save up €20, 000 for children's education by 2031.
Lee's medium term goal is to start a savings plan for his children. After all monthly expenses. Lee can save an additional €145 per month or €35 each week . He doesn't need access to the money for 10 years and wants to make good growth on his investment.
Assuming Lee's attitude to investing is conservative and as he has some experience with investing via his pension. The advisor recommended at managed fund to help Lee achieve the necessary growth rates to hit his target.
Two examples of managed funds in Ireland with range of returns expected over the long term
Lee's portfolio approach.
Short term goal - Save for mortgage potential 1-2 years - Deposit Account
Medium term goal - Save for children's education - (10 - 18 years) - Managed Fund
Long term goal - Save for retirement - (30 years +) - Managed Fund via a Pension Plan
Benefits of Managed Funds available via a Financial Advisor
Potential to outperform deposits and inflation over time
Open ended savings for the long term
Access to a wide range of professionally managed investment funds
Tax free growth over time
Benefits of unit price averaging - helps reduce timing risk by buying units each month
Difficult to access in the first 5 years due to penalties meaning you're less likely to spent it adhocly.
Downsides to Managed Funds
Money can go up as well as down
Money locked away for up to 5 years +
Managed charges per annum approximately 1%
Benefits of Deposits
Money is safe and protected by the deposit guarantee scheme
Money is accessible in emergencies
Downsides to money on deposits
If left on deposit too long, you risk eating into your money and it eventually will reduce in value over time
low to no growth on money
no making your hard earn money work for you
Like the old saying goes - Don't put all your eggs in one basket. Spread your money across deposits and investments. Make you money work smarter not harder. Take the portfolio approach.
* This is not financial advice but my own views based on my experience in the industry. If you want advice I recommend you talk to a qualified advisor.