Is There An Alternative To Low Deposit Rates?

/ 6th December 2021 /

With inflation eating into the purchasing power of cash deposits, a corporate investment bond with a life assurance company offers the potential of a higher return, writes Eamon Duggan (pictured), Regional Sales Manager at Aviva Life & Pensions

There is an old adage that ‘cash is king’, which reflects the belief that holding cash is more valuable than any other form of asset. Certainly, when looking at your balance sheet, keeping a certain amount of cash to meet the short-term cashflow needs of your business makes sense. However, holding all your cash on deposit can come at a large cost, as:

• Corporate deposit rates are at historic lows. A number of banks are now offering negative interest rates, and the highest 5-year fixed term deposit AER is 0.1% (source: Bonkers.ie 11 October 2021).

• Inflation is eating into the value of cash. Ireland’s annual inflation rate increased to 3.7% in September 2021 (source: CSO). With interest rates at historic lows, returns on deposit accounts are not keeping pace with inflation and are eating into the real value of your balance sheet.

There may be a better solution

Albert Einstein described compound interest as the eighth wonder of the world. “He who understands it, earns it...He who doesn’t, pays it,” the genius scientist observed. Thus, companies with a large cash position pay a high price in terms of lost opportunity when their surplus money just sits on deposit.

There are other options available that have the potential of a higher return. One of these is a corporate investment bond with a life assurance company. Your company will have access to a range of funds with different risk and reward trade-offs, so you can build a portfolio that matches your company’s risk appetite.

Of course, as the financial crisis in 2008 and the Covid pandemic have proven, investing has its ups and downs. So when you invest, it’s important to have a long-term perspective. It’s 14 years since the start of the global credit crisis where the MSCI World Index lost over 40% of its value. Investors who held their nerve and remained invested were generally handsomely rewarded.

For example: a €50,000 initial investment in Aviva’s High Yield Equity Fund which was invested at the worst time (August 2007), in that the investment would have borne the full brunt of the financial meltdown, would have grown in value to over €143,000 by 1 September 2021*.

Your Financial Broker can help

If you’re looking for an alternative to the low interest rate your bank is currently paying on your deposit, your Financial Broker can help you find an alternative that works for you. You can find your local broker at www.brokersireland.ie.

• To learn more about a Corporate Investment Bond from Aviva,
visit www.aviva.ie/corporateinvestments

Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in this fund you may lose some or all of the money you invest.
Warning: This fund may be affected by changes in currency exchange rates.