What to do with Ulster Bank & KBC Deposits

In recent weeks we have received a number of phone calls from clients who have deposit accounts with either Ulster Bank or KBC. With the imminent departure of these banks from the Irish banking scene many have sought out our advice as to what to do with these deposits. In some cases, they had almost forgotten that they had put the money aside for emergencies which, at this stage, never arose. In any event, they now need to reappraise what to do with this money.

Sound Financial Planning Advice

Our advice now is no different than when nobody was aware that these banks were likely to close down their Irish operations. Quite simply, it can be summarised as follows:

• We always encourage all our clients to continue to maintain a rainy day fund to deal with any unexpected circumstances that might arise such as a major illness or a career change like redundancy. Typically, we would advise that at least one year’s family expenses be kept aside for such circumstances but depending on each individual family other funds might need to be set aside as well for university fees, car replacement, house refurbishment or even possible assistance to a family member.

• When Ulster Bank and KBC leave the Irish market the remaining banks are most likely to offer no interest rate or may even charge negative interest. This means that, in the latter circumstance, banks would be charging you to hold your money.

• An alternative is to use An Post products such as Savings Certificates, Savings Bonds or National Solidarity Bonds. While the rate of return on each of these is still very small and is spread out over a longer term, such returns are tax free, unlike bank deposit interest which would be taxable. As an alternative you could also put the money into Prize Bonds. While there is no guarantee of any interest, each Prize Bond is in with a chance to win €250,000 four times a year and up to €50,000 in all other weekly draws or thousands of other weekly cash prizes.

• An alternative is to use An Post products such as Savings Certificates, Savings Bonds or National Solidarity Bonds. While the rate of return on each of these is still very small and is spread out over a longer term, such returns are tax free, unlike bank deposit interest which would be taxable. As an alternative you could also put the money into Prize Bonds. While there is no guarantee of any interest, each Prize Bond is in with a chance to win €250,000 four times a year and up to €50,000 in all other weekly draws or thousands of other weekly cash prizes.

• If you don’t have an emergency fund need or have sufficient regular cashflow guaranteed to pay your bills you might consider putting the funds into a long term investment. By long term we mean at least 8 years and by investment we would typically think of utilising a stock market based approach either by direct share holdings or via unit funds that invest collectively in the stock market. While there are other options such as property or private equity funds these do not tend to be very liquid and aren’t easily realised in the event that an emergency arises which is not covered by existing cash resources. Our approach has always been to make sure that all of our clients’ funds are always easily accessible. If they are not, then the product or fund is carrying an even higher level of investment risk than might have been obvious.

• Of course, investing in the stock market is not for everyone as it can be very volatile especially over the short term. A case in point was the impact of Covid in early 2020. Between 16 February 2020 and 23 March 2020 global stock markets fell by an average of 35% (as measured by the MSCI ACWI). This was the sharpest fall ever in global markets over such a short period of time. From 23 March to today’s date (10 September 2021) global markets have risen by 96%. As such, €100,000 invested on 16 February 2020 would have fallen in value to €65,000 on 23 March 2020 but would now be worth €127,500. Quite a range however you might look at it!

• These types of volatile swings are part and parcel of investing in the stockmarket, hence the need to stay invested for at least 8 years to ride out such price movements. When investing in such markets it is important to view the swings in a calmer light. As long as an investor doesn’t panic and sell when the market is down then there is no loss in value as no loss has been crystalised. All that has been experienced is a fall in value. Similarly, when the market rises there has been no gain unless the investment has been sold. Again, a transaction needs to occur before either a loss or gain arises.

Experience that shows

We have been advising investment clients for 35 years through many different geopolitical investment scenarios including Black Monday in 1987 through to the 9/11 attacks and then the Great Recession 12 years ago. There will always be up and downs globally and in each person’s own life. The most important thing is to have a personal financial plan and stick as closely as possible to it. In doing so one must need to recognise that investments are only one part of the overall picture.

If you or anyone that you know would like to revisit their own financial plan or even start one just ring us on 01-8455827 or email advice@aspire-wealth.com to set up a meeting.