Many people underestimate how important it is to invest for safety correctly. Obviously, a bank account is the best place to hold your capital as there is no risk involved – or is it? Whilst there is very little risk of losing your money in a bank account (as long as it is a major bank!), the effects of inflation could actually mean that you steadily lose money over a period of time. Inflation varies from country to country, but even in countries with so-called “low inflation”, this can still mean an erosion of your capital of 2%-4% per annum. If you are holding €100,000 in a bank account, this could mean you are losing between €2,000 and €4,000 each year! So how do you avoid this situation? Well, one way is to ensure that your bank account is paying an interest rate which is in excess of current inflation rates. This may actually be more difficult than you would think, particularly if you do not want to tie the funds up for a specific period i.e. putting the funds on term deposit. If you have set the funds aside to provide in the event of unforeseen medical costs or to fix the roof of the house should it be needed, tying the funds up with no access, may not be an option.

In this situation, there are investments available which will allow you to hold funds in a minimum risk environment (starting at the same risk level as holding the funds in a bank account and moving up depending on your needs) providing a return which is sufficient to cover the cost of inflation and still being accessible should the funds be needed in the meantime. In most of these types of investment, it is possible to switch to a different type of investment should your circumstances change – if your circumstances are such that you do not need to access the funds after all, it may be possible to switch to a higher returning fund to generate some growth or if necessary, switch to a fund which is able to provide you with an income.

Make sure that whatever you do with the funds, they are not exposed to the effects of inflation! Contact us for advice or further information.