Most of us are aware that current deposit interest rates are very poor ie. the return you will receive on any money you pay into a regular deposit or savings account with a bank is not going to be much to write home about. In fact, you would be very lucky to find anything that can offer even 1% per year.

But is it not risk free? Accepted, as these accounts are generally free of any market or investment risk you will usually get back what you put in. But have you thought about inflation? Over time this will eradicate the real value of your savings. For example, if inflation ran at a pretty modest average of 2% per year for 10 years, then the actual value of your money would be reduced by approximately 20% over that period. I don’t know too many people who would be happy with an investment that is worth only 80% of its original value after 10 years. Even if you do receive 1% interest per annum, the return is still minus 10% after 10 years. And this is before you even factor DIRT tax into the equation!

Therefore, more and more people are looking at taking out regular savings policies with life assurance companies that offer much higher potential returns. These involve buying units in particular funds. Yes, there may be some risk involved but what many of you may not know is that you get to pick the fund you want to invest in based on the level of risk, if any, you wish to take. In addition, as the payments are made on a regular basis you benefit from what’s called Euro-cost averaging. This means that if the fund unit price drops, you buy more units with your money. So, the downside has an upside!

So maybe have a think before you sign up to a savings account and ask yourself if you’re really getting value for money. It’s important to know you have other options.

Gerard Ward

26th January 2017