The 3 Greatest Risks from Having Your Savings in the Bank

By Rebecca Scaife

Published on: September 11, 2020

Financial Updates

At Everlake, we have built up a reputation for being a “go to” firm for affluent people who aren’t happy with advice they are currently receiving. Sometimes this is simply someone not fully trusting the advice they’ve been given and are now looking for a second opinion from us. More often than not, when the “fit” is good for both the troubled investor and ourselves, this ends up being the start of another valued client relationship.

We had one such situation recently. The straw that broke the camel’s back for this new client of ours was when the letter dropped through the door from her bank, advising that the bank was now going to charge for the pleasure of holding her deposit. Negative interest rates had arrived…

When we got the phone call, we asked why we were getting the call now. We were told because of the negative interest rates and the hope and expectation that there were better alternatives. Our answer was that yes, there are better alternatives but that these haven’t just transpired as a result of negative interest rates… The client replied by saying that getting low deposit returns for risk free savings (more about that in a second) was fine, but she wasn’t willing to pay for this supposed benefit. The conversation moved to banks and risk.

Banks are not risk-free. Do you remember 2008 / 2009? Anglo and Irish Nationwide went bust, several banks including Bank of Ireland, AIB and Ulster Bank (among others) were bailed out by governments to prevent them going bust. They don’t sound exactly risk free…

So leaving aside the prospect of paying the bank to hold your hard-earned money, we’ve identified the 3 greatest risks from having your savings in the bank as follows;

  1. Limited Deposit Guarantee Scheme

The client mentioned above had slightly more than €½ million on deposit, all in one of the main banks. She had just never really considered the Deposit Guarantee Scheme in Ireland, where only deposits up to €100,000 in each bank are covered. We quickly advised here that even if she didn’t take any of our other advice on board, she should spread her savings over several banks to avail of the Deposit Guarantee Scheme in each bank or the Post Office via State Savings.

  1. The Impact of Inflation

As we are all too aware, inflation is back with a bang. As a result of the war in Ukraine and the impact on energy prices among other factors, inflation is expected to average 6.7% in 2022.

With deposit rates at 0% (or worse), deposits in the bank are simply making you poorer in terms of the purchasing power of your money. There are better alternatives to be evaluated, that will ensure you are not just getting poorer each year. Now is the time to consider other investment alternatives – even relatively low risk investment strategies will seek to match inflation, thereby maintaining your spending power.

  1. The Risk of Convenience

This is the “helpful” sales call, often from a front-line member of staff in your bank, not really up to speed with you as a person, your goals and your circumstances. They have in-house, pre-packaged products available to sell as an alternative to deposits. The issue is that your bank can’t give you impartial advice, they can only sell you the products from the company that they are tied to – typically Irish Life or New Ireland. These products can’t take into account your unique tax status and therefore for many savers and retirees, they may be unsuitable or at least potentially not as suitable as an alternative. Convenience can cost…

We’re delighted to have started an advice relationship with our new client that is mentioned above. We see great opportunities to add a lot of value to her, taking account of her unique circumstances.

At Everlake, we help savers and retirees make the most of their hard-earned savings, whether it’s to see them grow or to ensure they enable you to live to the full in retirement.  Would you like to find out more about how Everlake can help you to make the most of your savings?

Further information can be found in Investment Consulting: Our Approach Download Guide