Saving Savy!
Whether it's an emergency fund or a pot of cash to use for a big purchase you have planned, it makes sense to have savings. Putting money by when you have a chance can help you avoid high borrowing costs and let you spend without worrying about where the money is coming from.
However as banks have started to pay lower interest rates for money on deposits due to their gradual rehabilitation after the financial crisis you will need to shop around to get the best deal for you!
Whether you opt for a regular savings account or investment or one that takes a lump sum will probably depend on when you think you might have money to save. Either way here is a guide to the pros and cons of both options:
Regular Savings
This requires discipline where you become used to setting aside a cash amount every month. One of the best ways to create this discipline is to set up a standing order so that your money is switched to your savings plan the day after you get paid that way it won't be sitting around in your current account tempting you to spend it.
The next key decision is finding the product which best meets your needs and works for you. To do this you will need to decide on
- how much you intend saving per month?
- do you require access?
- how long do you envisage saving for?
- what are you saving for?
These questions will then help you decide whether you want to save in a traditional bank Cash Savings Account where you will be offered an interest rate based upon the level of access to the fund you require. Notice Accounts won't give you instant access to your cash but may offer a higher interest rate. The key to this product is ensuring that once DIRT (Deposit Interest Retention Tax) has been paid that the return you will get is better than inflation. No good saving and the expected pot does not beat inflation...you might as well put the money under your mattress!
The alternative is to save regularly through an Investment Savings Plan which gives you access to stock market shares. Stock market shares have the potential to outperform any cash saving account and is arguably best suited to cautious investors who prefer to drip-feed their money into the markets-the value of your investment will not change so dramatically.
When the market drops your regular payment will buy more shares and when the market rises you will buy fewer shares but the shares you bought in the previous months will be worth more-this is known as "euro cost averaging".
The downside to this way of investing is that, if you drip-feed, only a small portion of your money will be earning returns in the early months. However, the flip-side is that should markets fall only part of your investment will be subject to this fall and your next regular investment will buy units at a lower price!
Lump Sums
This is often the chosen route for people who have larger amounts of money to invest typically from a family windfall or bonus in work.
The approach to selecting which option is best for you here is no different to the approach taken in regular saving as outlined above.
However an important point to consider if choosing the Cash Save Account option is that if two savings accounts are advertising a similar rate of interest, you will earn more if you can afford to pay in a lump than if you make monthly deposits.
Some fixed-rate bonds pay higher rates of interest in return for savers agreeing to lock in their cash for a set period. However, they tend to have penalties especially if you with draw your money before the set term ends, you will end forfeiting interest. Again the question of access is key before establishing the product you require.
Investing in the stock market type option has one excellent benefit in that your investment is immediately exposed to the market and has the greatest potential for growth. However, it will also have the greatest potential for loss should the market fall. So getting the correct advice is paramount in your decision making process.
Over the long term, lump sum investing is usually the most rewarding- as long as you stay invested through both the market falls and market rises. It is over shorter periods of market volatility that regular saving has proved to be most successful.
So if you are saving for that rainyday...an education fund or you have a lump sum to invest please complete the attached enquiry form or contact Alasdair directly on 01-810 1912 or via info@agsfinancial.ie and he will happily create a savings plan for you or review your existing savings road map to make sure you are on the right track!