The pain that depositors are feeling, with rates below 1% gross will continue. This is due to the fact that the ECB have made it clear that they intend on keeping rates at current levels for many years to come.
Anyone waiting for a significant rise in deposit rates, in the coming years, is totally delusional! In addition the high DIRT rate of 41% and USC charge is adding to this misery.
Leaving money on deposit should only be considered for convenience rather than as an investment decision.
So what is the solution? You need to look at moving to an investment that offers growth potential. Whilst there are still a very small number of fully Capital Protected Investments available, the reality is that these options have dwindled considerably, resulting in an environment where investors need to take some limited risk in order to achieve returns.
So what options do I have? We have outlined below the various types of Term Investments currently available
Life Assurance Unit Linked Funds
* These funds are available from Life Assurance Companies and dominate a considerable portion of the Investment market. There is a wide array of funds available which vary from low to high risk.
* Funds are open ended i.e. they can continue indefinitely and generally should be considered for minimum of 5/6 years.
* Taxation on gains is @ 41%.
* Annual management charges ranging from 0.75% upwards are usually charged.
* Future returns are dependant on the performance of the fund selected.
Wide array of Equity/Property and Bond Funds available.
Capital Protected Bonds
* A wide variety of bonds available with a selection of Capital Protected Options at maturity varying from 90% to 100%. Currently there are 2 options available which offer 100% Capital Protection on maturity; however it is our belief that neither will provide attractive returns.
So, to achieve reasonable returns, it is essential to take some risk.
* These bonds are for a fixed term i.e. have a specific start/finish date and currently vary in term from 5 to 6 years.
* Taxation @ DIRT rate of 41%.
* Generally there is no access to funds during the investment term however some bonds do have an early encashment option at year 3, which is subject to the value at the time.
* As these bonds have predefined features i.e. there is no ongoing management, no annual management charges or 1% levy apply.
Option 1: 90% Capital Protected Absolute Return Bond
Option 2: Target Return Bond (90% or 95% Protection)
Option 3: 90% Protected Performers Bond
Soft Capital Protection Bonds (Kick-Outs)
* Soft Capital Protected Kick-Out Bonds have the ability to mature early i.e. Kick-Out prior to the completion of the investment term. They offer specified returns, if certain events occur and the original capital is only at risk if the bond continues to maturity and a certain event also occurs.
* Generally these bonds are for a period of 3 to 6 years and whilst they have fixed terms, each one can mature early i.e. before the expiry of the term. The current bonds available have potential maturity cycles of anywhere from 3 to 12 months in each calendar year.
* Taxation subject to Capital Gains Tax @ 33% or DIRT @ 41%.
* As with Capital Protected Bonds, Kick-Outs have defined features and are therefore not liable for any management charges or 1% initial levy resulting in a 100% Investment Allocation.
* Returns are based on the features outlined in each bond and vary with each option.
Option 1: 5yr Kick-Out Plan (EuroStoxx 50)
Option 2: 3yr Kick-Out Bond (3 Stocks)
Option 3: Pharma Kick-Out Bond (3yrs)
If you wish to receive further details or discuss same please contact us.
If you hope to have a comfortable retirement it is important to start planning and saving as early as possible. More than half of Irish working adults don’t have a pension, and many of those who do aren’t paying it enough attention. If you are in that category, then David McCarthy can help https://financialconsultants.ie/financial-services/pensions-and-retirement/