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Independent

Become a super saver by making your money work

 

by John Cradden

The term "super-saver" is most closely associated with retail offers, such as discounted travel tickets for buses, trains or planes. But it is also an appropriate way to describe those individuals who apply a more strategic approach to saving money.

In terms of devising a savings strategy, either depositing your lump sum into a fixed-term account with the most competitive rate or opening a regular-saver account with the best current rate of interest is a good first step.

"Having more than one type of savings account is key to a good savings plan" says Simon Moynihan of the price-comparison website Bonkers.ie.

"A regular-saver account that deducts a fixed amou7nt from your current account once a month can quickly help savers reach a goal with the minimum of effort."

But opening multiple accounts of similar types can also make sense. You could open a number of regular saver accounts (with the same institution or different ones), with each intended for a particular purpose.

For instance, you could have an account for helping to finance things such as holidays, a new car or a major home improvement project.

Another regular-saver account could be designated for funding third-level education costs over the long term. You might also consider an investment-type account.

College registration fees have more than doubled since 2009 and now cost €2,000 for a 2011-12 academic year. The average cost of living for students living away from home is now nearly €7,500 a year, according to the Dublin Institute of Technology's office of campus life.

Irish Life claims that by putting €100 a month into a long-term savings plan over the course of your child's second-level education (six years), such as it's Clear Regular Invest product, you would end up with a fund of nearly €9,000 after tax and deductions.

Another reason to open multiple savings accounts, particularly of the regular-saver variety, is the limits on how much you can save before the interest rate drops.

"Ulster Bank is currently offering an excellent 5pc for regular savers putting away up to €1,000 per month" says Mr. Moynihan. "The limit on this account is €15,000 before the rate drops to 1.5pm.

"But the good news is that this account offers instant access - so as the limit is reached, funds can be moved to a lump-sum account."

Opening a number of lump-sum accounts, as well as regular-saver accounts, is worth considering if you need quick access.

You have the choice of fixed-term accounts, with attractive rates of interest that restrict your ability to access the funds for a specified period of time, and demand accounts, which are not too far behind in terms of interest rates.

"Nationwide UK is offering 3pc on balances from €2,000 to €2,000,000 with instant access to funds up to six times per year" says Mr. Moynihan.

Another option is the Irish Life Secure Growth Plus 3 plan.

It offers a fixed return of 25pc before tax, after four years and six months (compound annual rate of 5.08pc). In addition, if the Euro Stoxx 50 index grows by 25pc or more during the period, Irish Life will add an extra 10pc before tax to your fixed return. there is a minimum investment of €20,000.

Keeping at least two or three months' salary - preferably a bit more - in an emergency account is recommended by most financial experts in case of a change in financial circumstances.

Moving your funds around in order to keep your money earning the most interest can be a key part of your savings strategy.

The ECB is expected to start raising interest rates, so you can expect to see banks raise their savings rates.

Of course, banks would prefer you to keep your money with them as long as possible.

"Because Irish savers have been moving funds our of term accounts, rates remain very strong to attract new funds" says Mr. Moynihan.

For instance, Permanent TSB is offering 3.46pc on a 12-month term while Nationwide UK is offering 3.4pc on a similar account.

"Savers should be sure that they will not need access to the funds for the duration of the term before committing" Mr. Moynihan advises.

If you are not sure if you will need access, one strategy could be to split up your lump sum in two - one amount to deposit in a demand account that is easy to access, while the other (preferably most of it) in a fixed-term notice account.

Don't forget the other half-way house: notice accounts, where you give notice before you withdraw money, such as one month.

"Large amounts of money have moved from term accounts into notice accounts throughout 2010 as confidence in the banking system declined," says Mr. Moynihan.

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