At Global Wealth, we have built up a reputation for being a “go to” firm for affluent people who aren’t happy with advice they are currently receiving. Sometimes this is simply someone not fully trusting the advice they’ve been given and are now looking for a second opinion. More often than not, when the “fit” is good for both the troubled investor and ourselves, this ends up being the start of another valued client relationship.
We had one such situation in the last 3 weeks. The straw that broke the camel’s back for this new client of ours was when the letter dropped through the door from her bank, advising that the bank was now going to charge for the pleasure of holding her deposit. Negative interest rates have arrived…
When we got the phone call, we asked why we were getting the call now. We were told because of the negative interest rates and the hope and expectation that there were better alternatives. Our answer was that yes, there are better alternatives but that these haven’t just transpired as a result of negative interest rates… The client replied by saying that getting low deposit returns for risk free savings (more about that in a second) was fine, but she wasn’t willing to pay for this supposed benefit. The conversation moved to banks and risk.
Banks are not risk-free. Do you remember 2008 / 2009? Anglo and Irish Nationwide went bust, a number of banks including Bank of Ireland, AIB and Ulster Bank (among others) were bailed out by governments to prevent them going bust. They don’t sound exactly risk free…
So leaving aside the prospect of paying the bank to hold your hard-earned money, we’ve identified the 3 greatest risks from having your savings in the bank as follows;
1. Limited Deposit Guarantee Scheme
The client mentioned above had slightly more than €½ million on deposit, all in one of the main banks. She had just never really considered the Deposit Guarantee Scheme in Ireland, where only deposits up to €100,000 in each bank are covered. We quickly advised here that even if she didn’t take any of our other advice on board, she should spread her savings over a number of banks to avail of the Deposit Guarantee Scheme in each bank or the Post Office via State Savings.
2. The impact of inflation
Inflation in Ireland has been very low in recent years, coming in at just under 1% in 2019. This is very similar to many developed economies at the moment. However deposit interest rates were even lower than this, typically paying around 0.01% in the same period. Both figures may appear insignificant and small on their own, but when you put them together, there is a difference of almost 1% between them. This is not insignificant – this is the reduction in your spending power from keeping your money on deposit. Not beating inflation every year makes you poorer. The way to do this is to consider other investment alternatives – even relatively low risk investment strategies will seek to beat inflation by a few percent each year, thereby increasing your spending power.
3. The risk of convenience
This is the “helpful” sales call, often from a front line member of staff, not really up to speed with you as a person, your goals and your circumstances. They have in-house, pre-packaged products available to sell as an alternative to deposits. The issue is that your bank can’t give you impartial advice, they can only sell you the products from the company that they are tied to - typically Irish Life or New Ireland. These products can’t take into account your unique tax status and therefore for many savers and retirees, they may be unsuitable or at least potentially not as suitable as an alternative. Convenience can cost…
We’re delighted to have started an advice relationship with our new client. We see great opportunities to add a lot value to her, taking account of her unique circumstances.
At Global Wealth, we help savers and retirees make the most of their hard-earned savings, whether it’s to see them grow or to ensure they enable you to live to the full in retirement.
Would you like to find out more about how Global Wealth can help you to make the most of your savings?