Q My wife and I are in our 70s and have savings which are earning paltry interest rates. Would we be just as well investing some or all of these savings in Prize Bonds? We would be categorised as very cautious investors and don't want to go down the investment route.
A We asked Marc Westlake, managing director of Dublin-based Global Wealth. His "simple solution" is to invest in State Savings via An Post, opting for the five-year savings certificate product. This pays an annual equivalent rate of 0.98pc a year tax-free.
He said a bank account would need to be paying nearly 1.5pc gross (before Deposit Interest Retention Tax) to match this return. Many are paying only 0.01pc, so it would take a typical bank account 149 years to earn the interest that State Savings will pay you in one year, he said.
You get an unlimited guarantee from the State and so this is less risky than having more than €100,000 on deposit with the bank. The minimum investment is €50 up to maximum €120,000 per individual per issue. To benefit from the full return, you must hold the product to maturity.
Mr Westlake's family solution could work well if you have children who have credit cards, car loans, mortgages or other debts they are repaying. If so, their interest rates are likely to be much higher than the savings rates available. You could consider lending them some money and "replacing the role of the bank" with the bank of mum and dad. A typical €10,000 car loan at 7.5pc a year means a monthly payment of €200 a month. Mr Westlake suggests loaning your €10,000, clearing the loan early, and having him or her repay it to you over five years at a reduced interest rate of 3pc. Both parties gain from this and you are sharing your family resources, the financial adviser noted.
Of course there is some risk with this strategy which is that you will not be repaid, he or she will get divorced, become ill or die.
For a larger loan you could insure against this or use legal contracts, but for a smaller loan like this perhaps the risk is worth taking, he said.
Mr Westlake said he is a big believer in families sharing resources together wherever possible. In principle, thinking outside of the box like this in a family context probably makes more sense than buying a Prize Bond which will probably make you cents, Mr Westlake said
Our guide to Prize Bonds can be found here