Wisdom of opting for 7 yr term deposit at 3%

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jim

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We have 30k that we have no immediate use for and would like to put it to work.

I see on Raisin theres a 7yr term deposit at 3% AER (says non compounding, does that mean its simple interest?). The bank is german and called Aareal.

Would this be a wise use of funds?
Pros = its risk free, decent return if int rates stay lowish.

Cons = locked away for 7 yrs. Poor return if int rates rise, id prob get much better return if bought an index or a couple of 'safe' shares? Opportunity cost if a good alternative invest opportunity arises.

Whats peoples thoughts?
Thanks.
 
jim said:
Whats peoples thoughts?
Click to expand...
Impossible to comment meaningfully without something like a Money Makeover.

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7 years is way too long to lock money away for.

There are plenty of cases over the years on askaboutmoney along the lines of "I have two years of a three year fixed deposit with EBS but my plans have changed and I need the money now. Is there any way I can get it? "

In any event, 7 years is a good horizon to invest in the stock market.

jim said:
its risk free,
Click to expand...

No, it's not. Inflation will probably reduce the value of it over the next 7 years.
 
I am already invested in stock market through my pension so i want to diversify in this way
 
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10 year national solidarity bonds at 2% AER tax free would seem a better option to me, unless there's a specific reason you will need to access it after 7 years. You can easily access your savings earlier, albeit with a loss of interest of course.
 
jim said:
Whats peoples thoughts?
Click to expand...
Non compounding is bad.
What is the risk of depositing with that bank?
What are the early encasement penalties (or is it even possible)?
What are your expectations for interest rates over the next 7 years?
What is your attitude towards investment risk? 7 years might be an appropriate equity investment time period
 
Age:
  • 46
    Spouse’s/Partner's age:46

    Annual gross income from employment or profession:
    E115k
    Annual gross income spouse:
    E35k

    Type of employment:
    Both private sector employees

    Expenditure pattern:
    We are both generally 'savers'

    Rough estimate of value of home
    E550k
    Mortgage on home
    E200k
    Mortgage provider:Ebs
    Type of mortgage: Tracker, interest only, fixed rate
  • Fixed until next june
    Interest rate
  • 2.1%

    Other borrowings – car loans/personal loans etc
    None

    Do you pay off your full credit card balance each month?
  • Dont have credit card, should we have one?

    Savings and investments:
    E150,000 savings. In various raisin accounts up to 2 yr term length

    Do you have a pension scheme?
    Yes, I max it for my age with 10% Er on top. Value 365k, 100% equities.
  • She has none

    Do you own any investment or other property?
    No.

    Life insurance:
    Yes.

    What specific question do you have or what issues are of concern to you?
  • Want to put 30k of savings to better use. Proposal is to lock away for 7 yrs at 3% which we are comfortable with but looking to see what pitfalls might be
 
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Fortune said:
Non compounding is bad
But not by much for this deposit when i run calc simple v compound.
Click to expand...

Fortune said:
What is the risk of depositing with that bank? 100k deposit protectikn standard for raisin
What are the early encasement penalties (or is it even possible)? none, can w/d early in exceptional case with approval, dont envisage havng to do so
What are your expectations for interest rates over the next 7 years? dont really have any. I doubt they increase very significantly such that 3% locked for 7 yrs would be disastrous
What is your attitude towards investment risk? 7 years might be an appropriate equity investment time period already sufficient exposure through pension
Click to expand...
Thanks. Added resp above.
 
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To summarise...
  • Annual household (gross?) income: €150K
  • PPR value: €550K gross, €350K net of outstanding mortgage
  • Pension: €365K
  • Spouse pension: Nil
  • Savings: €150K cash
Having all of your non PPR/pension net worth in cash isn't really a good idea in my opinion.

Shouldn't you consider using some of the spare resources to deal with your spouse's lack of any pension cover?
 
Sarenco said:
You would get a better (after-tax) return by simply paying down your mortgage ahead of schedule.

Keep it simple.
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The net rate is slightly better for paying down the mortgage. Given that it's fixed till June, paying the maximum allowed now off the mortgage, putting the balance of the €30k (if any) in an appropriate deposit account till June and pay it off when the fix ends would be the best approach.
 
You have €150k savings in demand/short term (<2 years). This is in the region of 1.5 years net income, which is very comfortable (unless there are other eventualities on the horizon). You are proposing to keep 80% of this in demand/short term which is still very comfortable. Keeping 30k on top of 120k sounds like a bit of a luxury, unless you have other considerations. If I were your age and in your position, I would bite the bullet and put this into the mortgage or spouse's pension (take tax considerations into account to figure out which is best).
 
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