One of the questions we’re asked nearly every day now that is frustrating so many people in Ireland is,  why are deposit rates so low?  It’s a valid question, and the answer probably lies in lack of competition among the banks, as well as inertia among savers who just leave their money in the bank, losing value as they do so.

For us, the more relevant question to be considered is around the alternatives to be considered, that maintain many of the positive benefits we associate with having money in the bank. These include,

 ·   Loss aversion bias: This is a principle identified under behavioural economics that recognises the greater desire to avoid losses over achieving equivalent gains. Broadly speaking, people feel pain from losses much more acutely than they feel pleasure from the gains of the same size. So losing €1,000 hurts more than the pleasure of gaining €1,000. This fear of loss can prevent people from taking action.

·    Capital protection: People can get distracted by the nominal value of their money. They deposit €10,000 in the bank and while wanting more, they are at least satisfied that there is at least €10,000 in the bank.

·    Liquidity: One of the great benefits of money in the bank is that unless you have it in a term / notice account, you can just go in and withdraw it immediately. Some investments take more time.

So, with deposit rates showing no signs of increasing any time soon and when we’re looking at investment alternatives, these sorts of factors need to be considered.

We’ve been examining the “Amundi Protect 90 fund”, which is a diversified multi-asset fund, with 90% capital protection. It is managed by Amundi, Europe’s largest asset manager and is available exclusively through Irish Life. We think that in the current low deposit rate environment, investors who traditionally favoured lower risk investments have had limited options to generate returns. Some of those investors are now searching for performance, without putting all their capital at risk and this fund seeks to balance the search for returns with downside protection. We believe that depending on your individual circumstances, this may appeal to those looking to benefit from potential market rises through active and flexible management, across a diverse investment universe - but with a floor on potential losses, regardless of market performance.

Another important feature of this investment solution is in relation to the liquidity challenge. In the case of the Protect 90 fund, there’s daily liquidity so investors can make one-off contributions and switch in and out of the fund to any of the large range of funds that are available on their Irish Life plan. They’re not tied in for a long period of time.

We also like the sustainable investing characteristics of this investment which is classified as ‘Article 8’ under the Sustainable Finance Disclosure Regulation (SFDR) as the fund integrates ESG criteria in its investment process.

Are you seeking an alternative to leaving your money in the bank? If so, please give us a call and we can discuss your specific circumstances and whether the Protect 90 fund or another solution may be right for you.