MARKET UPDATE: Savings and Investments – Mortgage
So far this year the markets have been positive in response to the Covid-19 vaccinations and the proposed reopening of economies. This response took a hit last week with some countries, including, Ireland temporarily suspending the use of the Oxford-AstraZeneca vaccine but this has now been resolved and markets have again returned positively. Markets have also been helped with the passing of the American Rescue Plan, with President Biden signing the $1.9 trillion pandemic-relief bill into law on Thursday. However, fears over inflation still affected the bond markets. Globally, Government bonds fell across the board.
Brexit unrest continues after Britain unilaterally extended the grace period for border checks with Northern Ireland. The move caused dismay in EU circles have threatened legal action along with tariffs and fines, showing further unrest ahead.
Year-to-date global equity markets are up 7.1% in euro terms and 4.2% in local terms. The US market, the largest in the world, was down 1.5%, with eurozone stocks returning 0.3%. Positive news overall so far this year. The outlook continues to be positive, with volatility expected as always.
EARN MONEY ON YOUR SAVINGS
For some Covid-19 has led to a surge in savings. Where income hasn’t been affected, the opportunity to spend has been reduced and savings have increased significantly, resulting in Irish savings reaching a record high of €125 billion at the end of 2020. This comes at a time when interest rates are at an extreme low. Irish banks have been charged for accepting deposits and have passed this cost onto their customers. Most banks now have negative interest rates on their accounts, while Credit Unions have ceased taking on further deposits or have capped the amount they will accept into their accounts.
In order to counteract negative or zero interest rates, investors will have to consider moving some of their cash out of bank deposits and into assets such as equities, fixed interest alternatives and property. This can be done very easily by sitting down with your Financial Advisor and working out a plan.
Risk and reward go hand-in-hand for investors, so it is important for individuals to determine what level of risk they are comfortable with. It is important to look at timelines. Easy Access Savings Accounts – with no exit penalties – will appeal to many savers who may need access to their rainy day or emergency funds at short notice.
Long terms savings and investment options are extremely important and should take into consideration in your longer term plans. This may be paying off your mortgage sooner, retiring early, or putting the kids through college. A long-term savings account allows you to take advantage of compounding interest over time. The longer you have to save and let interest compound, the more your money can grow. Diversification is important and good advice here will prove invaluable.
Ireland continues to have the most expensive new mortgage rates in the Eurozone. The difference between Irish rates and the average in the Eurozone means homebuyers here are paying almost €190 extra a month compared with other European countries. The sale of Ulster Bank has reduced competitiveness in the market and the need to drive down mortgage rates.
In Ireland, mortgage holders typically do not review their mortgage rates or switch banks, which could potentially help save thousands over the lifetime of your mortgage loans. It is evident that more competition in the banking sector is required along with the need to look at the rules around repossessions and capital requirements which make lending in Ireland so much more risky and expensive than elsewhere.
This time of year we always remind our clients of the importance of reviewing your protection and pension policies regularly to ensure that these still fit your requirements and provide value for money. Please feel free to give us a call if you would like us to review these on your behalf.