Deposit rates have been at all time lows for a sustained period and investors are starting to see the effects of this on their annual deposit return statements – which are showing zero!!
At the same time we have seen the perfect storm with Covid where customers have been unable to spend on holidays, meals out and in physical retail stores. The graph below shows the net household deposits since 2004, in rolling 12 month periods. You can see that during the 2000’s there was a strong level of money being put on deposit and then following the financial crash this turned negative as people needed to access their cash deposits – the rainy day funds we so often speak about.
However you can also see that up towards the end of 2020 we have had the most money deposited in any 12 month period we have on record.
We have seen headlines and spoke about this “wall of money” on deposit for the last number of years and this figure of €100bn of household money on deposit has often been used. However this figure of €100bn has been well surpassed at this stage and the latest graph below demonstates how this has now hit €125 billion. There is also approximately another €20bn within Post Offices and State Savings Certs (whose rate of return is being cut also this week). This is a phenomenal amount of funds not working hard enough for your clients.
A Possible Solution!
Unit linked regular savings plans are an excellent way for clients to gradually drip feed into the markets to benefit from potentially greater returns over the medium to long term. There are numerous multi-asset funds available to suit every risk profile and the benefit of Unit Cost Averaging in dampening volatility is also a huge advantage to this gradual approach.
These unit linked regular savings plans can be set up personally or through a company as corporate savings plans. The main goal of such a savings strategy is to garner a better return than available through the deposit channels we have outlined above.
In demonstrating the effectiveness of monthly savings plan to dampen the volatility and riskiness of markets I have also used 2020 as the perfect example. If a client had €6,000 to invest at the start of 2020 they could have invested it as a lump sum or saved it as €500 a month over the course of the year. Despite an incredibly volatile year, thankfully, both methods of investing gave positive returns but the journey was very different.
In the last 12 months Irish Households have saved on deposit almost as much as we did in 5 years of the SSIA campaign back in the 2000’s. These funds aren’t getting any sort of real return for your clients and Quintas Wealth Management would love to support you in addressing this.
Please feel free to contact me to discuss if you need any further information.
8 May 2021