Things aren’t as easy as they used to be for the average saver. Not too long ago they could simply put their money in a bank deposit account and expect to get a decent return on it. Even with Dirt (deposit interest retention tax) running at 39 per cent they could enjoy net returns after tax of between 2 and 3 per cent with almost zero risk.
That option is no longer available in today’s low yield environment – that’s a euphemism for near-zero deposit interest rates. Savers have to shop around if they want to make their money work for them.
There are some ways to still earn a reasonable return without exposing yourself to risk. One of these is a regular savings account such as the one available from KBC Bank. The standard account offers an AER (annual equivalent rate) of 1 per cent but this rises to 2 per cent for KBC current account holders and to 3 per cent for holders of the bank’s current account Extra product.
"A regular saver account is the perfect way to get into the habit of saving regularly," says Petrina Grady, head of current accounts, savings and investments with KBC Bank Ireland. "You can save between €100 and €1,000 per month and you can also put in a lump sum lodgement of up to €10,000 with the Extra Regular Saver."
If regular savings is not for you KBC also offers a competitive rates for standard demand deposit and fixed term savings accounts. But these can’t match returns available to regular savers. This means that people with a lump sum to put aside will probably have to look towards an investment product such as those offered by KBC and other providers if they want to see their money grow.
“It’s a difficult environment out there for savers,” says Leonie McCann, senior investment manager with Davy. “Banks are pretty much charging negative interest rates now for savers and people are having to move up the risk spectrum to achieve a return on their money. We spend a lot of time with clients to look at what rate of return they need to achieve and what risk that might entail.”
Davy offers a range of multi-asset multi-manager funds based on the attitude to risk of different investors. Each fund invests in a mixed portfolio of assets and funds across different sectors and markets in order both manage risk and gain exposure to growth. For example, the fund aimed at more cautious investors will have a lower exposure to equities which are more volatile than other assets.
“The multi-asset multi-manager approach dampens volatility while still offering the potential for higher returns,” says McCann.
Standard Life Investments marketing manager Brendan Barr agrees. "We always stress the importance of diversity and not having all your money in one asset class, regardless of whether that is property, cash, bonds or equities. We have a series of five multi-asset funds which offer that diversity and are designed to match the differing risk attitudes of investors. Over the past five years the lowest risk fund has delivered an average return of 4.7 per cent per annum while the return for the highest ranked has averaged 10.1 per cent. Of course, the last few years have been very good on the investment markets and those very good returns are no guarantee for the future."
Very importantly, these returns are available even to people with modest amounts to put aside. “You can invest in one of our regular savings plans for as little as €100 per month,” Barr adds.
You don’t have to be a stock market genius either. “Time is far more important than timing,” he explains. “It’s not a question of timing your investment to take advantage of market movements, it’s the length of time you have it in that counts. For example, our oldest managed fund was launched 35 years ago and has delivered an average return of 8.4 per cent since then. That means that if you had invested €59,000 in it back in 1982 your investment would be worth €1 million today.”
KBC offers a similar range of options to investors through its Privilege Portfolio. The three funds are aimed at defensive, dynamic and very dynamic investors and have a floor limit which aims to preserve a proportion of the capital invested regardless of events on the markets.
The low risk fund has a 95 per cent floor limit with a target allocation of 30 per cent shares or share-related investments and 70 per cent bonds or bond-related investments. Meanwhile, the fund for very dynamic investors has an 85 per cent floor limit with a target allocation of 75 per cent shares and 25 per cent bonds.
Returns on these investment products are taxed at normal capital gains rates of 33 per cent. However, there is a way not only to avoid these taxes but to actually get tax relief on your savings by investing in a pension which would be based on a similar managed fund.
“The way the tax relief works on pension contributions it means that every €60 you put in is actually worth €100,” says Barr. “That is a tremendous incentive.”
Davy senior financial planning specialist Colm Power agrees. “People should look at pensions for their long term savings and investment needs,” he says. “They offer the triple advantage of tax relief on contributions, tax free growth, and a tax free lump sum on retirement.”
There are, of course, other options for savers such as local credit unions, direct investments in property and shares but all the advice points to the need for the kind of diversity offered by these managed funds if you are looking to achieve a higher rate of return than those offered by bank deposit products.