Private Client Services

Charging negative interest

Oliver O'Connor Oliver O'Connor

We have heard for quite a while now how financial institutions are charging “negative interest” on corporate deposits.  It was interesting news at the time, but while it didn’t impact personally it was soon forgotten by many.  Not now.  It is only a matter of time before financial institutions will be charging people for holding personal deposits.  In advance of this, what should you do?

1. Review your financial plan

Review your current wealth and how it is positioned to help you achieve your long term financial goals. Are your current deposit holdings in place to fulfil a short term need? Or are they sitting in an account you’ve been meaning to do something with for a while now?

2. Maintain your rainy day fund

If you are in the lucky position to have some savings accumulated, we would always advocate that you have some funds immediately available to you for any of life’s financial surprises.  Rules of thumb suggest that you have at least a couple of month’s net income easily accessible.  However, rules of thumb are different for everyone. It is important to understand your specific needs.

3. Understand risk

Most people are more than happy to keep their cash in deposit accounts, earning little or no interest in recent years. Over the last decade we have seen a significant reduction in interest rates, which may soon be negative on our personal funds. Gone are the days when we could leave our cash sitting in a deposit account, at a rate which was equal to or even greater than the inflation rate at the time. 

Zero or negative rates can greatly impact the real value of your money, with long term inflation expected to increase the cost of everyday living year on year.  For long term cash holdings, this will steadily reduce the purchasing power of your money and overall wealth. Would you invest your cash in an investment which was guaranteeing a loss in value every year?

It is not that long ago people were nervous to have their money in Irish banks.  That fear has dissipated, thankfully, but institutional risk (the risk of the particular institution failing) always remains. Not only should we have our funds diversified across various assets, but also institutions.

4. Invest with purpose

Avoiding bank charges should not be your sole reason for investing. All investments should have a purpose; why and for how long do you wish to invest? Is it to fund a child’s education, the purchase of a new home, or gifting to future generations? All of these are justifiable reasons to invest, but they should not all follow the same investment strategy.

Having a purpose allows you to focus on what you are trying to achieve. If you invest with a long term objective in mind (e.g. funding third level education for your new-born), then it should be easier to ignore negative stories or headlines which are inevitable during any investment period.

5.Get advice that’s right for you

There is endless information available online or down the local pub (maybe not at this very moment!), but this is only information and should not be taken as advice. Every person is different, whether it be by wealth, personal needs or their general attitude to money. It is essential that you seek professional advice to give an objective view on your personal circumstances and how to best meet your financial needs.

Read our Eight Steps to Successful Investing by clicking here.

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