The European Central Bank (ECB) is due to meet again to discuss interest rates on the 7th of May. It is widely anticipated that they will reduce the base rate from its current level of 1.25% to 1%. Historic lows and good news for many borrowers but we cannot afford to get complacent.

In a recent interview ECB Governing Council member and head of the Bundesbank, Alex Weber, stated that a 1% interest rate would be the "lowest" limit for him. However most importantly Mr. Weber also stated that as soon as the economic crisis is over, "interest rates will have to be raised quickly again", and herein lies the danger. As soon as the "green shoots" of economic recovery begin to emerge in the bigger European economies such as Germany and France, Irish mortgage rates and hence repayments will quickly increase, regardless of whether things have started to improve here in Ireland.

Therefore those who can afford to should be making every effort to save the money they are currently gaining due to reduced mortgage repayments. We are all acutely aware that Irish household incomes are being hard hit by a combination of tax hikes, pay cuts and job losses, however even in these difficult times it is still very important to make a conscious effort to save if you can.

In a recent survey carried out for Halifax Bank 73% of people stated that they plan to save over the next two or three years. When asked what piece of advice they wished they had been given 10 years ago, almost a third of those surveyed said they wish they had been advised to save.

For most the best way to save is to set up a direct debit from your current account into a separate savings account each month. This way the money is automatically taken out of your account before you have had the chance to spend it! Some savers find it better to set up a savings account with a different bank to where their current account is held to make less tempting to dip into their savings.

Although savings rates have been cut in line with the ECB rate cuts some banks are still offering very competitive rates of up to 6.5% on their regular savings accounts in order to attract new savers. It is definitely worth while shopping around for the best account and not simply opting for a savings account with your own bank. According to the Halifax survey a large number of people opt for a form of demand deposit account as opposed to a savings account because they prefer to get instant access to their money. However be aware that demand deposit accounts will have lower interest rates, as low as 1% at the moment which is considerably less than some savings accounts where rates can be as high as 6.5%. It is always important to read the small print ensuring that the rate quoted is not just a short term headline rate to tempt you in.

Finally, it is always advisable to pay off any personal loans, credit cards or overdrafts before you start depositing in a savings account. Personal debt is charged at much higher interest rates than can be earned on savings – so you will effectively save much more by reducing this debt.

The Financial Regulators web site www.itsyourmoney.ie is a good source of information on savings.

For further information on any of the above contact:
CML Financial, Independent Financial Advisors, The Business Centre, Lisfannon, Buncrana, Co. Donegal, T: +353 (0)74 9364255 F: +353 (0)74 9361955
CML Financial Limited t/a CML Financial is regulated by the Financial Regulator

Joanne Enright MSc QFA MSI
Email: joanne@cmlfinancial.ie