Stewart Quayle from discretionary fund manager Creechurch Capital Limited has said that jaded savers should be looking beyond banks for more fruitful returns on their funds…
Turn back the clock to 2010 and the Isle of Man was home to 34 banks registered with the Isle of Man regulator as deposit takers managing the sum of £51.6 billion in deposits. Names on the high street included: Bank of Ireland, Allied Irish Bank, Britannia International and Alliance and Leicester International.
Interest rates on one year deposits had plummeted from their prime of 7% back in 2008 down to rates of between 2.3% and 3%. Savers still had a good choice of providers beyond the big four retail banks.
Fast forward to 2017 and the landscape has somewhat changed: Island bank deposits have fallen to £44.6 billion and the number of available deposit takers has almost halved, limiting the choice for savers.
By the end of 2017 the number of banks will have fallen further, with institutions such as Duncan Lawrie, Zurich Bank International and Nationwide International closing their doors and surrendering their banking licences.
The significant reduction in deposit takers leaves savers with the thorny problem of finding a new home for their money. From the remaining banks outside of the big four, there are only two you would distinctly associate with tailor-made savings products. These are the products outside of the traditional money market rates. If you then consider the geographical risks raised by Brexit where the bank’s parent is based (Spain and Ireland), savers are faced with a very limited choice of where to place their money.
Adding to the savers’ woes is a low interest rate environment, where the best rate currently on the market is a one year fixed deposit, promising a stellar return of 1.25%. A stark drop from the highs seen less than ten years ago.
However, as disheartening as this backdrop is, it also frames a wider picture of opportunity for savers to take a step back and review their options. A typical saver above the Isle of Man depositor’s compensation scheme threshold should take the time out to review how hard their savings are working for them. And they should be doing this now.
As a nation of savers, the thought of actually paying someone to manage our money is a daunting prospect. On the surface it can appear counterproductive; why indeed would you pay someone else when you can do it yourself? We may complain about the interest rates, but we know our money is safely held in the bank. It’s a thought process deeply engrained when looking at finances on any scale, but one I would challenge. We have no issue in paying a garage to fix our car, an estate agent to sell our house or a lawyer to manage our legal affairs, so why not pay a professional to manage our savings? A more fruitful result may await.
Once examining the figures, everything clicks into place. A Nationwide International customer invested £50,000.00 in February last year into their one-year issue, 12 fixed rate bond, with a rate of 1.25%. Upon maturity, they would have had their capital returned, plus £625.00 in interest.
Alternatively, if you were to have your savings managed professionally by a regulated investment manager higher rates are achievable. An example of such is Creechurch Capital Limited where a conservative model over the same one-year period could have potentially returned circa 6.25% after the deduction of fees. Naturally, the performance figures from Creechurch Capital Limited are subject to market movements, thus the value of investments can move both upwards and downwards which mean there is no fixed rate guaranteed return. Whilst past performance is not an indicator of future performance, since 2010 on their conservative model could have produced a potential total combined return of 31.31% after the deduction of fees.
Saving via traditional means has become thankless in the current climate. Banks may be far from their glory days but this doesn’t have to be at the expense of savers. Opportunity is aplenty, if you know where to look…