With the Central Bank reporting savings on deposit at a record high in Ireland – an average of some €33,566 per adult – there are a host of challenges in 2021 for savers.
Rather than being rewarded for saving money, savers are finding themselves penalised by banking institutions with non-existent interest rates and even negative interest rates in some circumstances.
A recent Bank of Ireland survey revealed that people will likely continue to save throughout 2021. Whether savers are putting cash aside out of fear for the impact of the pandemic on the economy, or simply due to the lack of things to do and places to go as a result of restrictions, leaving savings on deposit will only result in one thing: no – and perhaps even negative – growth.
So, what is a saver to do in this unusual environment where traditionally virtuous savings habits are punished?
Scour the market
If you like the security of having savings on deposit, but cringe at the thought of your savings being eroded by inflation and negative interest rates, it is worth reviewing the market to find a better home for your cash. State Savings tax free bonds offer better interest rates than the banks while also giving you the flexibility to access your cash with just seven days’ notice. Whether the product is right for you though really depends on what you want to use your money for; if you are saving towards a specific goal, it is worth remembering that a strong investment will typically outperform cash deposits in the long term.
Invest to grow
Longer term savings goals – like saving towards your children’s college education – need a careful financial strategy to ensure they reach their target. While investments are subject to market volatility, it is important to remember that stock markets generally rise over the medium to long-term, with the biggest gains typically following the greatest falls. Thanks to a variety of investment options available, you can choose your level of risk and limit your exposure while still growing your savings in the long term.
Boost your pension
Topping up your pension is a really smart way to invest your savings for a greater return than a bank – while also being able to get cash back. When you make an Additional Voluntary Contribution (AVC) for a one-off, lump sum investment in your pension, you can get up to 40% tax back depending on your marginal tax rate. You can even have your employer match your contribution without it affecting your tax limits. So, not only will you benefit with tax relief, you’ll benefit again in retirement with the extra cash boost you make now.
Pay off your mortgage
If you have a standard variable rate mortgage, putting your savings towards your mortgage may be a good option for you. You can put any amount of savings towards your mortgage to reduce the principal simply by talking to your lender. Over the life of a loan, this can save you considerably, particularly if you are subject to higher interest rates.
Economic experts see the current trend towards record low interest rates continuing throughout 2021, while banks have already put customers on notice for the potential introduction of negative interest rates on savings accounts. As such, now is the time to find alternatives to bank and credit union deposit accounts for your hard-earned cash.
For financial advice call Hennelly Finance
If you are unsure about what savings options are best for you, talk to Hennelly Finance who can recommend a tailored strategy based on your circumstances and savings goals. Visit our website at hennellyfinance.ie or call us on 091 670 123 to find out more.