Q. We have accumulated about €40,000 in savings, currently sitting in our bank account. We don’t want to leave it there because of the threat of inflation and possible negative interest rates. Yet we don’t want to invest it either because we think we might need it in the next few years. Some of it we want to have accessible as an emergency fund.
We also want to do some work on our house in two or three years’ time. We could do the work now but we are busy with other things and also hoping that building costs will come down.
Is there anything we can do with this money in the meantime and still be able to access it? Are prize bonds or State Savings our best options? Any advice will be appreciated. AS, Co Waterford
A. Well done on having the discipline to accumulate a significant savings amount. Before taking decisions on investments or home improvements I would advise you to identify your financial priorities. They could be early retirement or to be debt-free by a certain age. This will dictate how to position your money to align with your financial priorities.
In your letter you have identified the desire to have an emergency fund and the intention of having a house renovation done in two or three years’ time. These are your short-term priorities.
I would suggest an emergency fund of three to six months of your net salary. These funds could be held on deposit, possibly in a notice deposit account, to be used in the event of a financial emergency such as the loss of employment or diagnosis of an illness.
Beyond this, it is good planning to try to organise your finances with specific goals in mind. Unfortunately your time frame is limited for the money you have on deposit.
You have said that you need access to it in two to three years’ time. You also say — correctly — that investing is not a viable option. You will need this money and such a short period is simply not suitable for an investment. Your options are therefore quite limited.
Prize bonds are non-interestbearing lottery bonds. Your capital has a government guarantee that it would be repayable on request. Another option is savings bonds, which pay 1 per cent tax-free over three years, an annual return of 0.33 per cent.
My advice would be to close off your emergency fund in a notice account; there are little differences between the rates on offer, but you can shop around to get the best.
The cost of materials and labour for home renovations is expected to continue to rise in the near future. Rather than leaving your money on deposit earning less than inflation, I would suggest that the best option would be to prioritise getting the work done now.
After that you can move on to meeting your long-term goals through the wider investment choices that will then be available to you.