Regular Savings Fund

dos30

I currently have a BOI iFund 5 savings/investment account where I invest €300 monthly for the kids college fund.

I started it just under 2 years ago, and plan on continuing to invest the same amount for the next 15 years.
It has been performing well but I've read in a few places recently about funds which offer better rates(the above is 1.5% annually) and better tax relief options such as EFTs.

I'm aware that the best option would be to pay that amount off the mortgage, but I like the idea of a rainy day fund, and the mortgage wouldn't be cleared in time for when the kids go to college even with the over payment.

So leaving the mortgage option aside, what would you guys recommend as the best regular investor options?

mickmac76

There is a lack of funds available in this country for regular savings. I used to have funds with Quinn Insurance and they charged 1%. After about 5 or 6 years the charges really do begin to look painful. And with both Quinn and Rabo funds no longer available I think ETFs are the only sensible option left. Be sure to check this forum and askaboutmoney.com for advise about tax issues and don't rush into anything. I'd invest in the ETFs every 4 months if I were you to avoid too many fees.

cooperguy

dos30 wrote: »

I'm aware that the best option would be to pay that amount off the mortgage, but I like the idea of a rainy day fund, and the mortgage wouldn't be cleared in time for when the kids go to college even with the over payment.

So leaving the mortgage option aside, what would you guys recommend as the best regular investor options?

Im not going to claim to be the definitive expert (so please correct me if I'm wrong) but I wouldn't necessarily agree that paying money off your mortgage would be the best option. The interest rate on your mortgage should be 3 point something percent. If your savings fund can earn more than this then you are better off investing in the fund than investing in the mortgage.

topper_harley2

cooperguy wrote: »

Im not going to claim to be the definitive expert (so please correct me if I'm wrong) but I wouldn't necessarily agree that paying money off your mortgage would be the best option. The interest rate on your mortgage should be 3 point something percent. If your savings fund can earn more than this then you are better off investing in the fund than investing in the mortgage.

Savings fund would need to return almost 6%, taking DIRT into account. Its 100% impossible to get 6% risk free gross deposit return at the moment in Ireland. Mortgage payment is tax free, guaranteed 3.something% return. You simply cannot beat that via deposits at the moment.

newacc2015

cooperguy wrote: »

Im not going to claim to be the definitive expert (so please correct me if I'm wrong) but I wouldn't necessarily agree that paying money off your mortgage would be the best option. The interest rate on your mortgage should be 3 point something percent. If your savings fund can earn more than this then you are better off investing in the fund than investing in the mortgage.

A mortgage is probably close to 4%. It is a tax free saving. Where as fund is probably taxed at 52% marginal rate, plus you have the 1.5% management fee. So the fund needs to return 7.5% to beat paying off your mortgage taking into account tax and management. I am going to hazard a guess it wont return 7.5% for the next 5 years. Whereas paying off your mortgage is a risk free return.

mickmac76

newacc2015 wrote: »

A mortgage is probably close to 4%. It is a tax free saving. Where as fund is probably taxed at 52% marginal rate, plus you have the 1.5% management fee. So the fund needs to return 7.5% to beat paying off your mortgage taking into account tax and management. I am going to hazard a guess it wont return 7.5% for the next 5 years. Whereas paying off your mortgage is a risk free return.

Funds are not taxed at your marginal rate. As far as I remember they are taxed at 41% which is a fair difference. I still belive that not all your excess money should be put against your mortgage this definitly applies if you are on a cheap tracker rate.

newacc2015

mickmac76 wrote: »

Funds are not taxed at your marginal rate. As far as I remember they are taxed at 41% which is a fair difference. I still belive that not all your excess money should be put against your mortgage this definitly applies if you are on a cheap tracker rate.

You are correct about 41%.

I dont think an actively managed fund is wiser than your mortgage. They can't beat the market and then they charge you 1-2% per year for pretending they can. Then you are taxed at 41% if you use an EU based fund.

Where as paying off your variable is a risk free return. I wouldn't pay off a tracker either. But if I was 3.5-4.5% variable I would not put it anywhere near an actively managed fund

cooperguy

newacc2015 wrote: »

A mortgage is probably close to 4%. It is a tax free saving. Where as fund is probably taxed at 52% marginal rate, plus you have the 1.5% management fee. So the fund needs to return 7.5% to beat paying off your mortgage taking into account tax and management. I am going to hazard a guess it wont return 7.5% for the next 5 years. Whereas paying off your mortgage is a risk free return.

Surely that's a very high fee? A passive fund/ETF wouldnt have anywhere near those levels of fees or taxes?

BrokenArrows

dos30 wrote: »

I currently have a BOI iFund 5 savings/investment account where I invest €300 monthly for the kids college fund.

I started it just under 2 years ago, and plan on continuing to invest the same amount for the next 15 years.
It has been performing well but I've read in a few places recently about funds which offer better rates(the above is 1.5% annually) and better tax relief options such as EFTs.

I'm aware that the best option would be to pay that amount off the mortgage, but I like the idea of a rainy day fund, and the mortgage wouldn't be cleared in time for when the kids go to college even with the over payment.

So leaving the mortgage option aside, what would you guys recommend as the best regular investor options?

Overpay your mortgage for the next 15 years and when the kids go to college you can remortgage to release equity.
The result will be that you have paid off much more of the mortgage capital and have paid less interest and you can release the equity needed.

Not all mortgage lenders will allow you to release equity for education so you may end up having to either lie to the mortgage provider and tell them you are renovating (not advised) or switch providers.
Alternately taking out another loan specifically for education but this will be at a higher rate then the mortgage.

dos30

I'm committed to investing the money rather than paying it off against the mortgage. I've looked at my fund documents and it's actually 1.75% management fee. So what I'm looking for it the best alternative to this type of fund.

newacc2015

cooperguy wrote: »

Surely that's a very high fee? A passive fund/ETF wouldnt have anywhere near those levels of fees or taxes?

A lot of people would go to their bank/broker for these active funds. I know significantly more people with active funds from banks etc than ETFs