With the introduction of the SSIA government sponsored savings scheme, many people began regular saving for the first time. Once their SSIA accounts matured the benefits of a regular savings habit are clearly evident; an accumulated capital lump sum that the individual can spend or reinvest.
There are two types of savings products, deposits and insured savings plans. Although we do offer advice in relation to lump sum deposits, we would not offer advice on regular savings bank products. These products are low risk and suitable for short to medium term savings. Typically the longer an individual commits to leaving their capital with the deposit taker and the larger the deposit, the better the deposit rate that will be offered.
An individual should ensure as much as is possible, that the deposit rate offered is as close as possible to the rate of inflation, otherwise real capital value could be eroded.
So what is the alternative to deposit accounts. Many product providers offer medium term savings plans, which offer access to many of the managed funds open to single premium investments (a lump sum investment).
Indeed, it could be argued that a savings plan which is accessing an equity based fund, is a lower risk way of investing in equity based funds. This is because you are buying units in the managed fund at an average price rather than at the price at any one time. As equity markets go through cycles, a regular savings plan allows the investor to buy in at an average price. It is assume that over the longer term the average price would increase and the investor would make a capital gain.
What Types of Plan are Available?
Most providers now allow for access to their full range of managed funds, perhaps excluding some specialist or closed pension investment only funds. It would also appear that the SSIA scheme has helped improve many of the savings plans on the market, with many providers keen to attract investors who wish to continue the savings habit. Many savings plans allow for investment diversification by splitting the regular amount invested into a number of funds, according to the investor’s instructions. These plans also allow a number of changes by the investor in the funds chosen.
Similar to deposits, the larger the regular savings amount and the longer the savings term, the better the investment allocation rate and charges. But critical to the investors decision on products, is their investment objectives and attitude to risk.