I have held around €40,000 in cash savings for some time. My bank recently approached me and suggested that I invest some of the cash I have saved with them. Should I take its advice?
– Anon, Co Meath
Ireland’s banks have been grappling with a strange problem lately: too much money. These days, minding customers’ cash on deposit carries a cost to the bank.
This is due to negative interest rates, which banks have hesitated to pass on to their retail customers.
In general, the banks have judged that customers will put up with near-zero returns on their savings, but will draw the line at being charged negative interest.
Instead, the banks have responded by approaching customers with larger cash balances, to see if they want to invest it. This offers you the prospect of a return on your money – as well as introducing the risk of investment losses.
It also turns your cash deposit from a cost to the bank into an opportunity for them to earn a sales commission.
So is this a proposal you should accept?
All the Irish banks except KBC team up with life assurance companies to offer investments.
If you bank with AIB, Ulster, or Permanent TSB, you’ll receive a proposal to invest in funds from Irish Life. If you use Bank of Ireland, they will offer funds from their life assurance business, New Ireland.
All will propose professionally managed investment funds, typically from Irish Life’s MAPS or New Ireland’s iFunds or Prime range. Both these sets of funds offer broad exposure to a variety of global assets. Nothing wrong with that.
But there’s no doubt that investments of this kind are available at lower cost, on better terms, and with wider choice, elsewhere.
For example, if you invest in Irish Life’s funds with AIB or Permanent TSB, you will typically be charged between 1.65% and 1.8% per year. Bank of Ireland’s standard fund charge is 1.5% (although some funds are cheaper).
You’ll also be on the hook for charges if you decide to withdraw your money within the first 5 years. In years 1-3 for example, a 5% charge is made on any withdrawals.
Comparable funds – and a wider choice – can be accessed elsewhere for 1.25% or less, with zero exit charges.
It’s great that Ireland’s banks are working to make investing available to a wider range of people. They offer a relatively convenient, out-of-the-box solution.
But if you are looking for greater choice, lower charges, and more tailored service, it’s worth looking elsewhere.
This blog is adapted from a Moneycube article which appeared in the Sunday Times on 5 September 2021.