Exploring Deposit Account Alternatives
Gareth Walsh
Gareth Walsh

There is nothing that irks consumers more than being charged for holding their hard-earned cash. For decades we have been brought up in an environment where being prudent and saving funds would be rewarded with a small rate of deposit interest. In today’s world we have become accustomed to zero deposit interest rates and bank account fees, but the next step of negative interest rates will be the final straw for many.

Whilst this may never affect all retail bank accounts, it has already been introduced for some corporate and large deposits across the Irish banking system. No doubt the confirmed withdrawal of Ulster Bank from the market will only accentuate this issue as depositors have less options and the remaining banks are faced with taking deposits that they don’t want.

Why is all this happening? As our Head of Fixed Income Ryan McGrath mentioned on our Exploring Deposit Account Alternatives webinar on 17th February, the European Central Bank (ECB) does not want us saving, it wants us to spend and stimulate the economy. The ECB is penalising European banks for placing deposits with them, and the banks are starting in turn to penalise their customers to recoup their loss. Given the rhetoric from the ECB at recent meetings, this policy is unlikely to change soon, without a drastic improvement in the whole European economy, and a return of inflation.

What can you do about it? Obviously, you can shop around for the best deposit rates, or least bad rates, but it is likely that a return of 0% will be the best outcome.

Considering investing some or all of the funds is the next step. We don’t recommend that anyone invests funds that they will need over the next 6-12 months, but if funds are not required in the short to medium term then a low-risk investment can make sense. If you have the liberty of time to allow an investment to grow and ride out the inevitable bumps, your investment has a good chance of achieving a better return than cash.

At Cantor Fitzgerald Ireland, we have a number of solutions for clients looking for alternatives to their cash deposits. The Merrion Investment Managers multi-asset range of funds offers low risk investments such as the Merrion Multi-Asset 30 fund, investing between 20-40% of the funds in risk assets (named after the mid-point of 30), with the balance of 60-80% in more conservative securities. This range has several different options, with Multi-Asset 50 and Managed Multi-Asset 70 for those looking to take more risk.

Our structured product range offers clients a variety of solutions, some with capital protection, such as the Protected Stoxx Global ESG Leaders bond. This product which has recently closed offered 80% capital protection at maturity. We are due to launch a second iteration of the product in the coming weeks. Our Global 85% Progressive Protection Bond offers 85% protection, with the protection level rising with the NAV of the fund.

If you are looking for a combination of conservatism and growth, then our Global Equity Income fund is worth considering. It is a pure equity fund, so comes with the associated risks, but it only invests in companies with a certain dividend yield, strong cash flow to cover the dividend and limited debt, and the dividend must have a history of growing. Global Strategist, Pramit Ghose has been running this strategy for just shy of 20 years and has gained a strong following over the past two decades.

Ultimately there is no free lunch, in the current environment you cannot get a return without taking at least some risk. However, as most global central banks are focused on growing inflation, the biggest risk maybe leaving cash sitting idle, losing value through current account fees, potential negative interest rates, and purchasing power as inflation increases costs of goods and services in various industries of our economy.

Gareth Walsh is a Senior Portfolio Manager at Cantor Fitzgerald Ireland.

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Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.