As a result of interest rate hikes from the ECB, Banks have increased their interest rates on lending across the board this year. While interest rates have increased on the lending side, they are still offering nothing to the saver who has money on deposit. With most banks setting savings rates as close to 0% as they can, money that is left on deposit is not growing and is being diminished by the high inflation environment that we currently have.
Inflation in Ireland is currently running at over 8% for the year and this has a major affect on individuals and companies’ savings. If an individual had €100,000 on deposit with the bank in January and still holds that money today, they have effectively lost €8,000 in real terms, as their purchasing power has diminished. By leaving money on deposit at these rates of interest and inflation, we are guaranteeing a loss on our money.
So, what are the alternatives?
At Honan FS we have started an investors club which will allow regular savers and those who have built up a lump sum, to contribute monthly to a savings plan which has an excellent track record of growth. We have identified two funds, the Zurich dynamic fund and top tech 100 fund which we recommend to clients. The dynamic fund was launched on 01/11/1989 and has returned on average a very impressive 10.6% per annum. The top tech 100 fund was established on 16/08/2001 and has returned an average of 9.4% per annum.
While these funds can be volatile and unpredictable in the short term, they are good investment options for someone who is targeting long term growth and is fed up of receiving no return from the banks.
You can start your investment journey with contributions as low as €100 per month. There are no huge barriers to entry and you don’t have to be a millionaire contributing massive money to qualify. This fund is for anyone who is able to save on a regular basis and is happy to leave the money untouched for 5 years or more. We charge a small set up fee of €100 and advise on the policy on an ongoing basis. Contributions are flexible and you can increase, decrease or pause your contributions entirely if your circumstances change.
However, the best outcomes will come to the investor who contributes consistently despite short term market conditions. Bad news is amplified, especially in finance but if you can tune out the noise in the short term and stay focused on your long-term goal you will be rewarded. Currently the news cycle is extremely negative, and we hear all the time about the poor performance of markets. However, if you invested in the Zurich dynamic fund and held your investment to this day, you would have seen 39.99% growth on your fund. This is despite a global pandemic and war in Europe during that time.
*These figures are accurate as at 18/10/2022
Passing on assets to your children while minimizing tax implications
Currently in Ireland, we can inherit up to €335,000 from our parents without any tax implication. Once this threshold is exceeded, we begin to pay tax at 33% of the excess. This can lead to large tax bills on inheritance if there is a large estate to pass on. However, there are some under-used tax-efficient ways of passing on assets to your children while minimizing the tax liability. The most effective way of doing this is to utilise the gift tax exemption.
Everyone is allowed to gift €3,000 annually to anyone, without any tax liability on the gift. Therefore, a couple can gift €6,000 each year to each of their kids and grandkids tax free. This can even be paid into an investment account for your kids which allows them to grow the funds you have gifted to them over many years. This has the potential to save hundreds of thousands in inheritance tax for families who are passing on large estates.
Take for example a couple, Joe and Mary, who have a family home worth €335,000 and €234,000 in savings with the bank. They have one child and two grandchildren. If they die there will be an inheritance tax bill of €77,220. The value they have passed on net of tax is then €491,780.
A more tax efficient way would be to pay €6,000 per annum into a Zurich savings plan in their child and each of their grandchild’s name. This would allow them to pass on €18,000 in total each year tax free. After 13 years they would have passed on €234,000 with no inheritance tax implications. They could even invest in the dynamic fund through this plan which has averaged an annual return of 10.6%. If they had done this the funds passed on would have grown to €429,859 . After exit tax is paid there would be a fund of €349,556. Added to the house value of €335,000, by utilising the gift tax exemption, Joe and Mary have managed to pass on an estate net of tax to the value of €684,556 versus €491,780.
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TESTIMONIALS
My initial meeting with Darach was as a Lecturer in LIT who will have less than 40 years- service at retirement. After a completing a review, I had a clear understanding of how my pension worked and how best to optimize it going forward.
I have found Darach to be very friendly, knowledgeable, no way pushy and quite transparent in his recommendations. I would strongly urge you to have that initial consultation. My experience of Honan Financial Services has been a very positive one both personally and financially.
I was looking for alternatives to saving in the bank as there was little to no growth to be had in their savings accounts. Honan FS made it very easy to invest in a multi asset fund which meets my long-term goals. I’d recommend Honan FS to anyone looking for advice on any aspect of their financial planning.
When taking out our mortgage we were offered mortgage protection by the bank. After a review with Darach we found a policy which was more comprehensive and better value for money. We were also able to optimize our savings through a regular savers policy which has achieved far better returns than what was on offer with the bank.
At the start of 2021 we both decided to do a health check on our financial status. We both had occupational pensions schemes left from previous employers and we reached out to Darach for assistance and advice on transfer options. Darach was excellent in helping us map out our future financial needs , determining our outlook to risk , providing sound financial advice and discussing best performing options to suit us
Darach dealt on our behalf with the previous pension providers and their associated agencies and the whole process we felt was very professional and a seamless transaction to us. Because of interest rate returns on bank deposits /post office being virtually zero and essentially loosing money on deposit we also seeked advice on alternative investment products for the mid to long term.
We were looking for products that gave a good rate of return and that we could lock away for 10 years plus to help with education funding. Both requirements were met very professionally by Darach and his team. We are both very happy we reached out to Darach . The only regret was we didn’t do this a few years earlier but better late than never.”
Darach has looked after my pension for a number of years and once he setup Honan Financial Services, it was an easy decision to move my pension / financial planning with him. Darach continuously demonstrates a thorough and rigorous approach to customer service and his clients individual’s needs. He is thoroughly professional, exceptionally friendly and the best in the west in my opinion. I would highly recommend him to all.