Rate hikes are good news for savers, so what’s out there and where’s the best place to put your money?
Don’t get too dizzy, but exciting news comes from the Bank of Ireland; Finally, the interest rates aren’t just for mortgages, but a generous 0.5 percent has been given to savers — for the first time in many years. It’s not even the best price! Permanent TSB gives you a whopping 1.5 under certain conditions.
This all reflects the European Central Bank’s relentless announcements of rate hikes, which are causing borrowers pain, and while banks are very quick to pass on rate hikes on loan products, they are slower to acknowledge that loyal savers also deserve a return.
In fact, banks like depositors, but only to a certain extent. While they cushion the money they use to lend, loans remain a liability on their books. If every single person showed up asking for their cash to be paid out – which happens during a bank run if you ever watched It’s a Wonderful Life at Christmas – most banks would have trouble paying them all out at once. Money is there to be lent, and that’s why adjustable rate borrowers other than tracker mortgages haven’t seen too much activity on their repayments yet.
If you’re a depositor – and the Irish are big savers with over €130 billion in savings accounts, post offices or government savings products like prize bonds – maybe it’s finally time you started making a return.
So what is out there and where is the best place to put your money?
inflation
Running between 8 – 9pc it’s a massive expense. It eats away at purchasing power and means the money you have today will buy fewer things next year. Until it goes down – ideally to 2pc – this will continue. In a livelihood crisis, everything costs more, but your money is worth less.
“Monetary policy,” or rising interest rates, is the only real tool banks have to restrain spending, and they will continue to do so until it works.
rainy day
According to Taxback.com’s Taxpayer Sentiment Survey, more than four in ten Irish people vowed to “save more” as a New Year’s resolution. Months ago, savings levels are still high compared to pre-pandemic levels. So before the pandemic, Irish households were saving around 10 per cent of their total disposable income [the current] 19pc is still well above the long-term average.”
While most people have savings and credit, we tend to hold on to the former when we think things might get worse. It’s our “rainy day” mentality. While there’s nothing wrong with this approach, there’s little point in having high-interest debt like credit cards when you have savings that don’t pay anything. It’s best if you pay off the card.
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interest rates for savers
Other options
According to Marc Westlake, Everlake’s Certified Financial Planner, people often ask if it’s a good idea to use savings to pay off your mortgage.
“If you have a large mortgage payment relative to your disposable income, it can make a lot of sense,” he says. While we don’t know where interest rates will end up, 3 percent (or even 5 percent) is considered “normal” by many economists. “Interest rates have averaged 8.18 percent since 1975,” says Mr. Westlake, so the ECB’s current policy is not a short-term measure.
“If money is tight now with interest rates at historically low levels, you are likely to have problems if mortgage rates went up, and so on the same debt payment you are saving interest at the average prevailing rate over the remainder of your mortgage (rather than just today’s rate)”.
future security
While pension contributions must come from “earnings from work” to take advantage of the generous tax credits on offer, you can do so via an additional voluntary contribution (AVC) in an occupational pension scheme or a self-employed private pension from salary.
As long as you’re below the contribution limit for your age and income, it doesn’t matter that the investment itself is made from a deposit account and not directly through payroll. Check with your employer for the best way to facilitate this, or with a finance broker.
Mr. Westlake gives an example: Mary earns a bonus of €20,000. Your mortgage is 4.1 percent APR with a remaining term of 25 years. She has the choice of paying the bonus into her pension plan or taking it, paying the taxes and reducing her mortgage.
If she takes it, Mary will have a net €9,600 to reduce her mortgage, saving her €15,744.47 over the remaining life of her loan. Compare that to paying the bonus into her company pension, which would be worth over €60,000 in 25 years. “The tax on the bonus is deferred – an interest-free loan from the tax office”.
How hard has Brexit hit Ireland?
The UK has made “major strides” in seizing the opportunities presented by Brexit, Rishi Sunak announced last week on its third anniversary.
The British Prime Minister added that the country was “confidently embarking on a new path as an independent nation”.
His view can be described as imaginative at best, delusional at worst. Brexit was a miserable failure.
But labeling its lingering aftermath also makes it our problem, so I thought I’d skip what works for Ireland and what doesn’t, given that the UK market has outgrown its European family.
On the plus side, we’re not as dependent on UK trade as we used to be. Strengthened by EU finances, we are a stable economy in comparison.
Whilst we depend on much of our energy from the UK it is also stable because they need it just as much. We also rely on a Norwegian supply and have more renewable energy than ever before.
Medication is also stable, albeit a bit overloaded. If you need cross-border treatment, you can get it in the North with low impact.
Mobile roaming charges are not (yet) charged, but could be charged together with hospital charges in the future.
If you are driving into the UK your Irish driving license will be accepted; not the other way around.
The big difference is for buyers. Importing from the UK means VAT will be added on everything and duty on certain items.
The best advice remains not to bother, whether it’s a car or a pair of shoes – with most goods you simply can’t save any more. Local shopping is better.
Cryptocurrency is a prison game
Central Bank Governor Gabriel Makhlouf has been unusually harsh on the cryptocurrency and the “uncomfortable” level of advertising targeting young people via social media.
Such products, without an underlying asset backing them, are little more than a giant Ponzi scheme, he said, warning that people who “invest” in cryptocurrency “should be ready to lose all their money.” He called for a ban on such actions. I agree.
Crypto is a game of crooks. Readers may recall that I tested the market over a year ago and bought seven such “coins”, including Bitcoin and Ethereum. The stock is now worth a fraction of its value; In fact, the cash I held in reserve is worth more now, and that’s because rampant inflation is eating away at it.
https://www.independent.ie/business/personal-finance/interest-rises-are-good-news-for-savers-so-whats-out-there-and-wheres-best-to-put-your-cash-42331187.html Rate hikes are good news for savers, so what’s out there and where’s the best place to put your money?
