In today’s low interest rate environment, if you want to make the most of your savings you may need to consider options other than the banks and building societies. Over the long-term, the returns on deposit accounts are unlikely to match the returns you may enjoy from investing in the funds available through the Foursight range of Savings Plans.
A smarter way to save
Your personal savings strategy
The Foursight Savings Plans offer a simple and straightforward way for you to enjoy, through a broad range of investments, the potential for returns which may be superior to those available from banks and building society accounts. Of course, the returns you will receive from your Foursight Savings Plan depend upon the performance of the various funds in which you invest your contributions. The value of your contributions may go down as well as up.
Putting money aside for short-term needs, e.g. saving for a well-earned holiday or redecorating a room in your house, is an example of a short-term goal. With a short-term saving goal, you will generally want easy access to your money at short notice and the potential to earn some interest, e.g. deposit accounts.
On the other hand, 'investing' generally means saving for the longer-term i.e. saving for a goal in the future which is typically more than 5 years away.
Most investments have some element of risk, but over the long-term they also tend to give you better potential for growth than savings or deposit accounts. The idea being that you can grow your money, thus allowing you to afford, for example, a good education for your children.
This is where the Foursight Savings Plans come into play.
1. Setting savings goals
The first step should always be setting your savings goal, what are you saving for? Once you have decided what you are saving for, you then need to review the time frame.
Savings time frames can be broken up into short, medium and long-term. As a general rule, you should satisfy your short-term needs first followed by your medium-term and so on. The following are guidelines on the various terms used to plan your savings strategy.
- Short-term: 0 to 12 months
- Medium-term: 1 – 6 years
- Long-term: 6 years plus.
It is important to remember that a typical saver should have an Emergency Fund, of approximately 6 months’ pay, put aside before planning for any long-term savings goal.
Are your savings beating inflation?
Inflation is the rise in price of goods and services. We all know that things seem to cost more every day, but how many fully realise just how much that thief called ‘inflation’ steals? Even with relatively low inflation, you steadily lose buying power of any money you just hold on to!
To stay even, you must invest at rates of return that at least match inflation rates. Your real rate of return, in terms of the buying power of your money, is your savings' or investments' rate of return less the inflation rate.
Example: If inflation is 4% per year and your return is 5% per year after taxes, you have managed only a 1% gain in real buying power. If your after-tax return is only 3%, you lose 1% in buying power.
Inflation occurs when demand increases relative to the supply available.
Key to a long-term savings plan – you must invest at rates of return that at least match inflation rates!
When taking out a savings plan what should you look for?
It is important that you review any charges that may be levied on your savings. Charges can take two forms:
A percentage deducted from your initial and monthly investment, known as a contribution or allocation rate.
A charge that is paid to an investment company to manage your investment, known as an Annual Management Charge.
Return is important in saving as you want to ensure your savings will meet your target goal and, more importantly, match or beat inflation. You would be surprised what difference 1% extra would make to your nest egg if you are saving over the long-term.
Being able to vary your contributions at any given time is important so your savings can be adjusted easily to meet your budget. With the Foursight Savings Plans you are free to contribute whatever amount you feel most comfortable with (subject to the minimum fortnightly contribution – currently €40). There is no maximum amount you can contribute to the Plan and you can increase/ decrease or stop at any time.
Access to your money
It is important that you find out if there is an exit penalty associated with your savings plan, should
you wish to withdraw your money early. The norm is a 5% penalty in years one, two and three, followed
by a 3% penalty in year four, and 1% in year five. Foursight's exit penalty is €20.
Monitor savings online
In today’s digital age it is useful to be able to check your savings online.
The innovative Client Centre at www.zurichlife.ie gives you access to live information about your savings policy, including:
- Current fund values
- Projected fund values
- Contribution history
If you feel like a savings plan is the right option for you, please call (01) 420 6795 to make an appointment.
Zurich Life Assurance plc is regulated by the Central Bank of Ireland.