HOW TO ZERO IN ON YOUR SAVINGS p8

Maximise your returns despite low rates, Louise McBride,

MORE Irish savers are in danger of having their money sitting in accounts which earn zero — or nearzero — interest after the country’s main banks slashed the interest paid on a number of deposit accounts in recent weeks. Ulster Bank chopped the interest rate on some of its deposit accounts last Tuesday.

Earlier this month, KBC cut the interest rate on its demand deposit account from 0.15pc to 0.05pc.

Last month, Bank of Ireland cut its demand deposit rate from 0.01pc to 0pc while AIB cut the interest it pays on a number of its deposit accounts to just 0.01pc. In late May, AIB will chop the interest rate on two of its regular savings accounts while EBS will reduce the interest rate on its high-yield access deposit account.

The Irish banks have been continually chopping their deposit interest rates in recent years and some are charging negative interest rates on large corporate deposits. However, the zero — or near-zero — interest rates being paid on many personal deposits could be the last straw for many savers.

ALTERNATIVES TO DEPOSITS

FOR the traditional deposit saver, it is very hard to beat the returns made on their savings without taking some risk with their money.

“Savers who do not wish to take on risk must accept that there is currently no return on their savings,” said one investment expert who did not wish to be named. “Low-risk investors should leave their money on deposit — there are no other true low-risk alternatives.”

Exchange-traded receivables (ETRs) and peerto-peer lending can be options for a cautious investor seeking an alternative to deposits, according to Ross Curran, managing director of financial advisers Curran Financial Services.

With ETRs, you are buying a company’s invoices for a certain amount of time. One company which offers ETRs and which is recommended by Curran is Credebt Exchange. You could earn about 3pc interest a year by investing in an ETR through Credebt, according to Curran.

With peer-to-peer lending, you lend money to businesses and earn interest on the money lent. “We recommend Linked Finance for those interested in peer-to-peer lending,” said Curran. “It’s possible to get a return of between 6 and 9pc — with very low risk.”

ETRs and peer-to-peer lending are not without their risks. With ETRs, you could lose money if the company or companies whose invoices you have bought don’t settle their bills —however, such defaults are often covered by an insurer. With peer-to-peer lending, you could lose money if the company that you have lent money to is not able to fully repay the loan.

Furthermore, Credebt Exchange and other firms that offer ETRs are not regulated by the Central Bank. Peer-to-peer lending is not regulated either. You therefore won’t be entitled to any investor compensation from the Investor Compensation scheme (which was set up by the State) should things go wrong after you invest in such products. So before putting any money into them, be sure that you fully understand the risk.

A low- to medium-risk investment fund could be worth considering as an alternative to deposits. Curran recommends Zurich Life’s Global Short Fixed Income fund for an individual seeking better returns than those delivered by the likes of the National Solidarity Bonds offered by State Savings. Aviva’s AIMS Target Income Fund, Zurich Life’s Prisma 3 fund and Irish Life’s MAPS 3 fund are some of the funds recommended by Alan Fearon, investment manager with Finance One.

Although you could make better returns than those made on deposit if you choose a good investment fund, returns are not guaranteed and there is risk involved. Your capital is typically not guaranteed either — so you could lose some (or perhaps, most) of the money you originally invested if the fund’s performance is bad.

ALTERNATIVES TO BE WARY OF

TRADITIONAL savers could lose money after investing in products which have been wrongly marketed as low-risk alternatives to deposits.

The Central Bank recently warned consumers about structured retail products (SRPs) such as credit-linked notes and certain tracker and investment bonds. With credit-linked notes, you invest in a borrower’s credit risk and if a credit event (such as a company liquidation or restructuring) occurs, you could lose a lot of the money you originally invested. With certain tracker and investment bonds, there is a soft capital guarantee. This means that you only get back the money you originally invested in certain scenarios — such as if the value of a particular investment asset or stock market index does not fall below a specified level. It therefore could be a lot easier than you think to lose money.

“The Central Bank is of the view that SRPs are not always a suitable alternative for consumers, given their complexity and potential for partial or total loss of investment,” said the bank when it published its review of these products in 2016.

BEST IRISH DEPOSITS

SHOULD you wish to stick with Irish deposits, the most you can expect to earn on a lump sum is around 1pc interest and only a handful of accounts pay this. For example, the best interest rate you’ll get on a lump sum of €10,000 is 1.5pc a year with the State Savings’ 10-year National Solidarity Bond. Otherwise, Permanent TSB pays 1.1pc interest on a number of fixed-term accounts. Its 24-month Interest-First account pays 1pc interest. Until last Tuesday, it was possible to earn 1.05pc interest on Ulster Bank’s Special Interest Deposit account but that rate has been cut to 0.85pc. Ulster Bank has also just chopped the rate on its UrFirst and UrMoney deposit accounts from 1.15pc to 0.95pc.

You can usually secure a higher interest rate with a regular savings account but keep an eye on the interest rates paid as they can dramatically fall after a certain amount of time — or once your savings reach a particular level. The best interest rate on a regular saver account is the 3pc paid on EBS’s Family Savings or KBC’s Extra Regular Saver accounts. AIB will be cutting the interest rate on its Regular Saver and Online Saver from 2pc to 1.5pc in late May.

COULD I MAKE BETTER RETURNS ABROAD?

“THERE are better deposit rates abroad but they’re usually from banks with lower credit ratings than others,” said Fearon. “You usually need to be a resident of the country to open an account abroad.” Cross-border online savings platforms — which allow people to shop around Europe for the best savings interest rates — could in the future be a way for Irish people to boost the paltry returns offered on their deposits. Raisin. com is a German-based online savings platform which is available to residents from 31 countries in the EU and EEA (European Economic Area) — however it is not offered to Irish residents.

For the EU residents who can use it, Raisin. com is a way of opening a foreign savings account which pays a better interest rate than the accounts in their own home country — without having to be a resident of the foreign country where the account is based. “We continue to work intensively on a concept which will allow Raisin to accept customers residing in Ireland soon,” said a spokeswoman for Raisin.

The Berlin-based European mobile bank, N26, offers cross-border current accounts to Irish residents. However, it does not offer savings accounts to Irish residents.

Even if you can open a deposit account abroad, the interest earned might not be that much higher than what you can earn in Ireland. You may be able to earn 1pc or more interest on a lump sum by opening an account in Britain — but you must usually be either living or working in Britain to be able to open an account there. Be aware too that any savings lodged in Britain will be held in sterling. So by the time you convert those savings back into euro (assuming you do so), you might get less euro back for your sterling than you originally put into the account — depending on foreign exchange movements.

It’s “not very easy — and in most cases is difficult” to open a foreign savings account remotely — due to the controls which banks must have in place to combat money laundering and fraud, according to one banking source this paper spoke to. Before opening a savings account abroad, check the local regulation of the institution you are considering opening an account with — and find out if your money will be covered by a deposit guarantee scheme similar to that available in Ireland.

“Where people are considering purchasing financial products or services from firms in other jurisdictions, the Central Bank would advise them to ensure they are dealing with legitimate — that is, appropriately authorised and regulated — firms,” said a spokeswoman for the Central Bank.

As always, have your eyes wide open before chasing better investment returns. The wrong move could cost you much — if not all — of your money.