Since the SSIA offer closed, what are the best options if you want to save for the future? It depends how much risk you are willing to take, writes Laura Slattery, who weighs up a variety of savings plans
If you are a modest saver who regularly searches the sky for threatening dark clouds, you will probably run screaming at the thought of losing any of your carefully put-aside money to circumstances beyond your control.
For somebody who wants to build up their savings in regular instalments, a deposit Special Savings Investment Account (SSIA) sounds ideal: save up to €253 every month for five years and then receive a 25 per cent bonus from the Government. The problem is that SSIAs closed last April. It's time to look for a new safe house for hard-earned cash.
The first stop might be the post office. An Post has a range of savings products available at local post offices, such as prize bonds, savings certificates and savings bonds, all of which carry a State guarantee.
Under the Instalment Savings Scheme, for example, savers put aside a minimum of €25 and a maximum of €500 every month. The total amount saved after one year and kept in the account for a further five years will earn 15 per cent interest tax-free, or a compound annual rate of 2.57 per cent over the six years.
Credit unions are another traditional home for savings. All credit unions are free to apply their own rates of interest to both savings and borrowings.
Banks and building societies offer a wide array of savings products. Financial advisers will always recommend savers to shop around. Consumers should also check exactly how much they are paying in monthly policy fees, entry charges and annual management charges.
Personal investment plans (PIPs) are another way to save regularly. The minimum monthly premium varies from institution to institution: at AIB, for example, the minimum you need to save in its PIP is €75 a month, while at Eagle Star, it is €50 a month.
The money is invested in a managed fund containing a mixture of equities, bonds, cash and property for a recommended investment period of five to seven years.
Taking out a PIP and other equity-based savings products is like dipping your toes in the market. Although they can be cashed in at any time, the cash-in value may be less than the contributions paid. The value of the units in the fund are not guaranteed and are exposed to market fluctuations.
According to Liam Ferguson of brokers Ferguson & Associates, the last thing people should do is switch out of an equity-based savings product to a cash fund when it is doing badly. "It's irrational behaviour that takes hold of people when they switch after a major fall, because you are actually realising the loss." So if you are worried about how your equity SSIA is performing at the moment, the message is not to panic. If these types of savings products sound like they're not worth the insomnia, keeping your money firmly in guaranteed cash deposits might be the answer.
Anglo Irish Bank and Northern Rock are two commercial banks off the beaten track of the high street that offer attractive interest rates for deposit accounts, which are operated by post or over the telephone. Savers in Northern Rock's 30-day notice account, for example, currently benefit from a compound annual rate of 3.5 per cent. A minimum deposit of €1,000 is needed to open the account and savings can be added in instalments of €500.
What do you do if you're lucky enough to have a lump sum to play with? Once you are satisfied that you have paid off your mortgage and made as many tax-efficient contributions into your pension as legislation will allow, then it might be time to look to the markets.
The first question you should ask yourself is: "how much risk am I prepared to take?" If the answer is very little, then one option is to play safe by choosing products that guarantee all or most of your capital. Investing doesn't have to be the financial equivalent of an extreme sport; all highs until you crash.
Ferguson comments: "While I can't say the markets won't drop further, they are at a low point at the moment, so people would be getting in at a fairly good price. I would be happy to do that, but there are plenty of people out there who simply wouldn't have the stomach for it and these people would be attracted to tracker bonds."
A tracker bond relates to the performance of particular stock market indices such as the FTSE 100 or the Dow Jones. They have a fixed term - usually five years - with no opportunity for withdrawals.
A with-profit bond, on the other hand, is a life assurance product that smoothes out returns over the term of the investment, protecting the investor from bumps in the market. But guarantees usually only kick in after 10 years. Cash your policy any earlier and exit penalties may apply.
"In the past, if you wanted a safe house, with-profits were a good option, but not necessarily now," says Liam Colgan, a personal finance consultant with financial advisers, the Acorn Group. With-profit bonds have lost a lot of ground during recent market falls. Colgan points out that the minimum amount needed to invest has decreased from €10,000 to €6,000 in some cases. Recently issued guaranteed trackers from Canada Life, Irish Life and New Ireland have all closed early, he says. "Quite a few people are prepared to take a punt on them."
Deposit accounts are the safest home for any lump sum, and fixed-term deposit accounts will allow customers access to a certain percentage of their lump sum every year, usually about 10 per cent.
But investors pay for their guarantees, says Ferguson. "There's an old maxim with regards to investments. The more cautious the product, the lower the return."
