Savers who want to participate in the Government's Special Savings Incentive Scheme (SSIS) have to choose between deposit-type accounts and investment-based accounts.
Deposit accounts offer fixed or variable interest rates and are attractive to savers who are risk adverse.
Investment-type accounts offer the potential of greater returns - depending on the performance of the assets in which the funds are invested. But the trade-off for potentially higher returns is the greater risk involved in investing in equities.
In addition, savers opting for equity products need to assess the level of charges involved - charges have to be deducted from the funds earnings before the saver gets a return - and the potential ability of the fund manager to produce an adequate investment return.
Becketts Employee Benefits and Personal Financial Consultants has examined the investment products currently on offer under the SSIS for The Irish Times.
Investment products from the life companies and banks have been given star ratings on a value-for-money basis - the highest four star rating is applied where company charges are lowest or will least dilute the return to the saver. Products one to seven in the table get a four star rating in the fifth year of the scheme and are in the top quartile in value-for-money terms.
A variety of investment accounts are available, allowing savers to choose accounts that suits the level of risk they are prepared to take.
The table shows the products on offer from the various suppliers according to the level of risk involved, through low, medium and high risk.
Savers prepared to take a high risk could go for a fund fully invested in equities, while savers who want medium or low risk could choose funds invested between cash, Government bonds, property and equities.
Savers who want to avoid risk could opt for a cash fund - a number of financial institutions are offering cash funds guaranteeing security of the saver's capital.
Investment accounts are operated on a unitised basis. Each month contributions are converted into units in the chosen fund and the value of those units depends on the performance of the assets in the fund.
There are two main risks with most investment accounts - the value of the units could fall if the underlying investments perform badly and the charges on the fund could significantly reduce the return for the saver.
The basic difference between a deposit and investment account is that an investment account provides the prospect of greater returns through the mix of assets invested.
But the trade-off is greater risk to the saver's funds - the risk that the investment will not perform well and that paying the charges of the financial institutions managing the investment could wipe out much of the investment return.
The saver is risking that, at the end of the five-year saving term, his funds could be worth less than those of someone saving the same monthly amount in a deposit account.
Savers interested in the investment route should look for accounts where the charges are competitive, where a good range of investment options are offered and where the saver can switch between funds over the five-year life of their account.
The table shows which institutions offer the option to switch and whether they charge for this facility.
The ability to switch is important because a saver who, for example, opts for a high equity content at the beginning of the five-year period may want to reduce the risk to their funds as market or economic conditions change. Savers should ensure that the institution they choose to open their account with offers the option to switch and has a range of funds available to switch into.
Mr Norman Barry of Becketts Employee Benefits and Personal Financial Consultants stresses that equity-based funds should ideally be viewed as a seven- to 10-year investment.
"Equity funds undoubtedly have the potential to do well over the longer term but if you are only looking at five years, go for an annualised guarantee," he says.
The charging structures can be complicated and vary from institution to institution.
What matters is how the combination of charges will reduce the investment return. This is called reduction in yield (RIY) and the percentage RIY has been used as the value-for-money measure in this table.
The RIY is like a handicap, as the investment fund needs to earn this return first before it can make a return for the saver.
But just because a fund charges less does not mean it's going to perform better. That is down to the stewardship and luck of the investment manager.
The SSIS opened for business on May 1st. Savers will receive from the Government £1 (€1.27) for every £4 they invest each month over the five years of the scheme.
Savers have until April 30th, 2002, to open a Special Savings Incentive Account (SSIA).
The minimum monthly saving amount required to participate is £10, while the maximum allowed is £200.
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