Sunday Times - A Question of Money - April 3

Posted by Jill Kerby on April 03 2011 @ 09:00

Be ware of putting your nest egg in one basket

MO’L writes from Dublin: Your reply to PC in last week’s Sunday Times on An Post risk makes me uneasy. Last year I put most of what I managed to save over more than 30 years into both An Post 5.5 year savings bonds and three year certificates. I was made redundant two years ago and am still unemployed. This represents every last cent I have and what I really must know is, was this a dodgy decision on my part given your hugely well-informed opinion on the foolishness about giving the State more money just to bail out the banks? To be more precise, are the two An Post schemes I mention here as potentially exposed in your opinion as the ten and four year bond schemes referred to in your reply to PC? Is it time to think about withdrawing my money altogether before the state of the State becomes so bad that default is inevitable?

I can only repeat what I have written before: you should not leave the bulk of your wealth in a single asset, whether this is cash, property, bonds, equities, commodities, precious metals, etc. While each asset category has its strengths and weaknesses, investment markets are fickle and can be volatile.  Cash is particularly vulnerable to inflation risk; diversification spreads your risk.

No one knows for certain if the Irish state will default on its debts, or what will be the outcome. If you are confident that An Post will always honour its deposit commitments even if there is a sovereign default, then you should be able to leave your life savings with the state-owned deposit taker and sleep peacefully.  If you are not reassured, then consider moving some of your money to other, non-Irish deposit institutions or to other assets or investments that suit your needs for income and security.  If you encash your bonds or certificates before the final maturity date, the total interest will be less than if you kept them for the entire term.

Rate dilemma

 JO’S writes from Limerick: I have a 35 year, €135,000 mortgage which I started in 2007. For the first three years it was on a fixed rate of 5.60% but has now come to an end. It automatically switched to a tracker loan for the remainder of the term. The interest rate I am now paying is 1.15% above the ECB rate so I am now paying 2.15%. I'm reading various reports that interest rates are due to rise once or maybe twice in the coming months. My question is, do you think that this is going to become the norm with interest rates on the rise for the next few years and do you think it would be wise to fix or try to continue with the tracker?



The 2.15% interest rate you are now paying is 3.45% less than your previous fixed rate. I reckon this represents a savings of at least €200 a month, or €2,400 a year.  At 3.7% over five years, PTSB’s fixed rate – the best one on the market at the moment - is 1.55% higher than your current tracker rate, but still lower than your previous fixed rate. However, this advantage wouldn’t last long if the 1% ECB rate started to rise by 0.5% increments. 


European interest rates have been kept artificially low to stimulate economic recovery, but price inflation is a growing concern. The situation is extremely fluid however, and there has even been some wishful thinking expressed that the European central bankers might postpone a rate rise because of the developments in Japan and North Africa, which could stifle economic recovery.


This isn’t an easy decision:  do you opt for five years of payment certainty or do you stick with a 32 year guarantee that your mortgage rate will never go 1.15% over the ECB rate and hope that even if the ECB rate were to rise significantly, it wouldn’t stay there for too long.


Default Position


WO’S writes from Dublin: The first query relates to both prize bonds and/ or post office bonds invested over a fixed period. If the amount invested by an individual exceeds €100,000 and the government does default is any of this sum reimbursed under an EU guarantee? The second query relates to capital gains tax. Can a loss by an individual in financial shares be offset against a capital gain on the sale of an Investment property? In order to avail of any offset does the loss have to occur before the gain?

Yes, you can offset your capital losses from shares against a capital gain made from the sale of property. The loss can be carried forward in time until it uses up the value of the gain.  As for your first question, the Irish state alone guarantees any money that you save in post office bonds or in prize bonds. Neither product qualifies for any of the Irish deposit guarantee schemes, nor are they guaranteed separately by the ECB or any other European agency.


Missing Years

CMcC writes from Dublin:  I am a 45 year old nurse, with a lot of interrupted service during my career, who started working for the HSE in 2005. As a member of the PNA union I get advice from Cornmarket. The adviser has suggested that I try and top up my pension with a guaranteed AVC. I vaguely remember a PrimeTime programme a few years back on Cornmarket and AVC's which makes me think they were not a good idea. Are AVCs suitable in my situation or would a PRSA be better?

The wisest thing for you to do is to engage a truly independent, fee-based advisor to help you address your retirement needs, especially since pension tax relief is scheduled to be reduced to the 20% standard rate by 2014. Cornmarket Financial Services are a division of Irish Life Permanent Group and its commission-paid sales people do not offer the same selection of products or advice to the civil and pubic service union members than is available from a truly independent, fee based advisor. Set up and maintenance fees and charges are notoriously high, so every insurance policy or investment you have ever purchased from Cornmarket should be independently reviewed.








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