Regular Savings Policies.
With interest rates at an all time low – and likely to remain so for at least the coming year – people seeking a reasonable return on their savings will need to consider an alternative to the traditional bank account.
Investors looking at flat to negative returns (after charges) are being forced to embrace some risk in order to generate positive returns on their money. In these recessionary times over 75% of the adults in Ireland are now saving regularly.
Many products are broadly similar in most respects but a few differentiate themselves in the market and my personal three of the best worthy of an investors consideration are:
AVIVA Regular Saver
Launched just this week the AVIVA regular saver is suitable for anyone who wants to save a regular monthly sum from €150 upwards for the medium to long term. Savers also have the option of kick starting their nest-egg by investing a lump sum at the start of their plan. So whether you are saving for yourself by ensuring you have a nest egg in the future, or if you are hoping to give your children or grandchildren a flying start in life, then this might be of interest to you.
Your money will be invested in one of Aviva’s wide range of investment funds – either managed by Aviva themselves – or by one of their fund partners, such as Blackrock – the World’s largest fund manager.
Coinciding with the launch of the Regular Saver, Aviva have also launched a new type of fund. Their Protected Growth Fund is for investors looking for exposure to the markets but who still want some protection against the worst of what the markets can cast. This fund has what Aviva calls a ‘Protected price promise’, which aims to protect your money from ever falling below 80% of its highest ever unit price. The fund invests in a broad spread of equities, commodities and corporate bonds and cash. So a diversified fund with downside protection could appeal to most investors.
The annual management charge varies according to the choice of funds. The majority of funds are managed by AVIVA investors and have an annual management charge of 1.25%. There are some exceptions such as the UK Property fund or the Euro Financials fund and these attract a higher charge. Funds managed by the likes of Blackrock also have a higher charge such as their World Gold fund and World Mining fund priced at 1.9%pa.
Importantly there is no bid/offer spread and the policy fee is only €2.50 per month. For investors paying up to €250 a month the amount of the investment that goes into the product is 100% but if commission is taken it can reduce it to between 98% and 99.5%. If the amount you pay each month is greater than €250 then you can get better rates. Nil commission deals will get you 100% to 101% invested.
Financial strength: AVIVA has a Standard & Poor’s rating of AA and a Moody’s rating of Aa3. The AVIVA group is the fifth largest insurer in the world.
Irish Life’s Signature Saver
Irish Life’s signature product with a min monthly investment of €250 is one of the most transparent insurance savings products on the market. Their brochures are all written to achieve the clear English standard.
The recommended investment period is 5 years plus and your regular payment buys units in whichever fund or funds you choose from a very wide range of leading managers run by Irish Life Investment managers, Fidelity and Bloxham. All in all they have a total of 24 funds ranging from low to high risk.
A popular fund choice is their Consensus fund which according to Money Mate has been in the top half of the performance table more often than any other managed fund. It achieved returns of 26% last year. Its aim is to appeal to investors seeking a half way house between cash and equities without taking a high exposure to risk.
Subject to certain conditions you can change your savings amount by reducing or increasing contributions or you can stop paying in at any stage or decide to cash in all or part of your savings. There are no early encashment penalties at any time.
The allocation rate (i.e. the percentage of the money you invest that actually goes into the fund) depends on how much you invest and the commission rate your intermediary takes. If you start at €250 a month then 95% goes into the fund. For amounts over €1250 a month the entry charge drops to 96%. A broker who takes no commission can set up the same policy with 100% invested. There is a policy fee of €4.39 a month.
The annual management charge depends on the fund chosen. Most fund charges start at 1% but can be up to 2.2% for funds managed by Fidelity.
In considering a home for your savings I thought it important to look at the present financial strength of the company taking your investment. Looking at Irish Life Assurance (ILA) on a stand-alone basis, Standard & Poor’s have recently emphasised they have a strong competitive position as leader in the Irish life and pensions market, they have a very strong risk based capital adequacy and are more resilient than their peers in the current economic downturn. ILA is rated separately by Fitch with an A- as its Financial Strength rating.
Zurich Savings Plus Plan
Zurich (previously known by many as Eagle Star) would be one of the most successful players in the regular premium savings market. Their flagship product in this savings category is called the Savings Plus plan.
The min premium is €50 a month and this starting amount gives you access to their extensive range of funds (their Matrix range of funds has 32 different funds to choose from). Many also choose to set up their plan so they can view up to date details online.
Zurich Life’s most popular funds are ‘managed funds’ called the Eagle Star Dynamic fund (annualised growth over past 7 years has been 6.74%), Performance (6.41%) both of which are viewed as higher risk funds and the Eagle Star Balanced (6.29%) which is a medium risk fund. Their secure fund is a low risk fund that guarantees unit prices will never fall and has made an annualised return of 2.33% over the same period.
The product should be viewed as a long term investment but in difficult situations you can vary the amounts of your regular premium and for some customers adding a lump sum at anytime may be an attractive feature.
I particularly like the facility of being able to view up to date details and values on the policy online.
The charging structure is a 95% allocation (a higher rate of up to 100% may apply depending on the commission rate taken by the intermediary) and an annual management charge of 1.25%. There is a policy fee of €3 a month, no bid / offer spread and there are no early surrender penalties.
Zurich have 60,000 employees worldwide and have a Standard & Poor’s rating of AA-.
John Geraghty is MD of online discount brokers www.LABrokers.ie