What's the best account to invest money - Limerick financial advisor

WHEN it comes to investing money, a question I’m asked all the time is, what type of account should I invest in?
And that’s because people want to know out of all the various providers in the marketplace who will give them the best return.
And they are asking because they are fed up with how poor rates are with money sitting on deposit with either their bank or with their credit union or wherever it sits.
And they’re right to be fed up because the rates on offer at the moment are shockingly bad where accounts with immediate access to funds are offering after tax rates ranging from 0.0067% to 0.167%.
With inflation currently running at 1.8%, if you want your money to hold its value that’s what you need to be earning.
And it's earning nothing at 1.8%, it's just standing still.

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So, what accounts are available that are near that net return of 1.8% we need?
And I’m going to tell you who they are, and they will be based under different headings and when I quote rates you’ll see I put AER after the rate, and I just want to explain what AER stands for and means.
It stands for Annual Equivalent Rate.
It is a rate that shows the actual annual interest rate taking into account the effect of compound interest which is interest calculated on both the initial principal and any accumulated interest.
And there are many factors that could influence what type of account suits you best, things like do you need access to funds, how long can you put the money away for, what is your risk appetite and so on. So, I’m going to try capture these headings in the accounts that follow.
Okay, let me start.

100% capital guaranteed with instant access to funds
The best account using these parameters is via Raisin.ie where a Swedish Bank (TFBank) is offering 2.12% (AER) gross for funds where you have immediate access to funds.
When you apply DIRT at 33% to this rate, you’ll get 1.42% (AER) so it’s a little under the 1.80% target but it’s the best available.

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The next best is via Bunq who are offering 2.01% (AER), which after tax is 1.347% (AER).
And the bronze medal goes to An Post at 0.75% (AER) which is 0.502% (AER) after tax.
100% capital guaranteed, fixed for one year, return guaranteed
The best available here is again via Raisin.ie who can offer us 2.59% (AER) through Rietumu Bank in Latvia.
After tax this rate becomes 1.73% (AER), which is a little short of that 1.80% target.
In joint second place are PTSB and AIB at 2% (AER) which after tax is 1.34%(AER).

100% capital guaranteed, fixed for three years, return guaranteed
The best available here is via Raisin.ie who can offer us 2.81% (AER) again through Rietumu Bank.
After tax this rate becomes 1.88% (AER), which for the first time the rate just about exceeds the 1.80% inflation rate target.
So, if you want to match the current rate of inflation, where the capital is guaranteed, you need to commit to a 3-year lock-in period.
Next best is PTSB who are offering 2% (AER), which after tax is 1.34% (AER) per annum.
And in third place is An Post who are offering a tax-free rate of 4% (AER) for three years which is 1.32% (AER) per year.

100% capital guaranteed, fixed for four years, return guaranteed
The best available here is via Raisin.ie who can offer us 2.64% (AER) through PTG Pactual (Luxembourg based).
After tax this rate becomes 1.77% (AER).
There are no other banks I could find who are offering a four year, guaranteed, fixed return.

100% capital guaranteed, fixed for four years, return not guaranteed
There is an account available through BCP Asset Management, and it’s called their Dual Index Bond 3.
And it tracks (a) the S&P 500 and (b) the Euro Stoxx 50 funds.
The capital is 100% guaranteed.
And if both funds are above their initial index starting point at maturity the fund will return 15%, which is an annual 3.56% compounded rate and it’s capping its returns to that amount.
The term of the account is four years and based on past performance the fund has returned the full 15%, 75.13% of the time.
So, worst case scenario you are getting back 100% of your capital and best-case scenario you are getting back a gross return of 15% which after tax would be 2.38% per year.
And if it delivered this return then it exceeds the current rate of inflation by +0.58% per year but that could be less or more, it will depend on what the average rate of inflation will be over the next four years but that applies with all accounts.

100% capital guaranteed, fixed for five years, return guaranteed
The best available here is via Raisin.ie who can offer us 2.80% (AER) through Aareal Bank.
After tax this rate becomes 1.88% (AER).
In second place comes An Post who are offering 1.74% (AER) which is tax free and in third place is PTSB who are offering 2% (AER) which is 1.34% (AER) after tax.

100% capital guaranteed, fixed for five years, return not guaranteed
There is an account available also through BCP Asset Management for a five year period where the capital is 100% guaranteed, and it’s called their European Pan European Bond 10.
It tracks the STOXX Europe 600 Index. And 100% of the Index growth is added to the initial investment amount and the returns are capped at 28.55% (5.15% CAR).
The average return for this bond over the time period has been +18.01% which is after tax 2.41% (AER).
And again based on past performance the fund investors would have seen the full return of 28.55%,74.14% of the time, which would be 3.45% (AER) which is well in excess of the 1.80% target.
But for those times where 25.86% of the fund didn’t return anything, the investor is getting back their full 100% invested so they will suffer no capital loss.
It’s clear that we’re going to struggle to get an account that matches the current rate of inflation and you can see the accounts that do, don’t exceed it by much and you’ll have to lock your money aside for a period of time.
The difficulty people have at the moment, and it certainly is a trade-off is if they want 100% capital guaranteed accounts, their returns will be poor, and they are this way because their money is deposited into low interest-bearing accounts and there is no way around this and the likelihood is that rates will stay low for the foreseeable future.
So, what are the alternatives?
The alternative is investing in accounts that are linked to the stock market and there are two upsides to doing this and one downside.
The two upsides are (a) better returns than having money on deposit or money set aside for fixed periods of time like the ones I have just referred to and (b) you have immediate access to money i.e. you are not signing up to any set period of time, you can leave the account in place for as long as you like i.e. two weeks, two months, two years, five years etc. so it’s up to you and you don’t have to specify any time period.
The one downside is that your capital is not guaranteed.
If we look at some of these funds and how they have performed over different time periods and how the returns differ depending on their risk rating, you’ll find something like this:

0% Capital Guarantee, No Fixed Lock in Period, Risk Rating 2
This would be considered low risk where there is only an exposure of about 6% towards equities.
And equities would be considered the most volatile of the various risk classes. And the remaining 94% is invested in government and corporate bonds and cash.
It’s important to point out by the way that the equity investment of 6% are in companies like Microsoft, Apple, Amazon, NAVIDIA, Meta, Alphabet etc. so they are not exactly some small companies or startups that would be seen as high risk.
Okay here are the net after tax returns they would have earned each year.
1 Year    1.722%
2 Years    2.566%
3 Years    2.066%
4 Years    0.914%
5 Years    1.191%

0% Capital Guarantee, No Fixed Lock in Period, Risk Rating 3
This would still be considered reasonably low risk where there is only an equity exposure of 21%.
The net after tax annual return on this type of account have been:
1 Year    2.472%
2 Years    4.073%
3 Years    3.553%
4 Years    1.668%
5 Years    2.533%
Let me jump one risk rating because I could list so many numbers that it might end up confusing.

0% Capital Guarantee, No Fixed Lock in Period, Risk Rating 5
This would be considered medium-to-high risk with an equity exposure of 71%.
The net after tax annual return on this type of account have been:
1 Year    5.168%
2 Years    8.829%
3 Years    8.440%
4 Years    4.348%
5 Years    7.782%
The various accounts I’ve referred to are examples of accounts that I believe are worthy of consideration because the alternatives i.e. leaving money in deposit and savings accounts earning <0.1% is not a good strategy in my opinion.
But there are many different things you have to think about when considering what type of an account is best suited to you and if that account is earning less than 1% and you’re happy with that, that’s fine as well. The purpose of this article was to show you what options are available that you may not have known about and/or considered.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie