Question: We’ve accumulated a reasonable amount of money in the bank over the past few years, but the interest being paid is tiny and inflation seems to be eating away at its value. We’re cautious people and don’t want to take unnecessary risks or gamble with our savings, but at the same time we feel the money could be working harder for us.

We may need access to some of it in the future, but not all of it immediately. What low-risk options should people in our position consider, and what are the pros and cons?

Answer: Many households and retirees have built up sizeable cash balances in recent years. The problem is that money left sitting in a current account or low-interest deposit account can gradually lose purchasing power as inflation rises.

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Many people assume the only alternative is investing directly in stock markets. In reality, there are several options between leaving money on deposit and taking full market risk.

The most suitable choice depends on how soon you may need the money, how comfortable you are with short-term fluctuations and whether your priority is security, income or modest long-term growth.

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State-backed savings products

For people whose main priority is capital security, State saving products remain one of the safest homes for money in Ireland.

Products such as Savings Bonds, Savings Certificates and Prize Bonds are backed by the Irish State through the NTMA. While returns are generally modest, your capital is secure and there is no exposure to stock market movements.

These products tend to appeal to retirees, emergency savings holders, or anyone who values certainty over return. Although they may not outperform inflation over long periods, they can still form part of a balanced savings strategy.

Fixed-term deposits and credit union accounts

Another straightforward option is a fixed-term deposit account with a bank or credit union. Typically, the longer you are willing to lock the money away, the higher the interest rate available. Some institutions are now offering more competitive rates than were available a few years ago.

The main advantage is predictability. You know exactly what return you will receive and your money remains relatively secure. Deposits with regulated banks in Ireland and across the EU are generally protected up to €100,000 per person, per institution under the Deposit Guarantee Scheme.

The downside is access. Early withdrawals can involve penalties or loss of interest, while after-tax returns may still struggle to keep pace with inflation.

Capital-protected investment

For cautious savers willing to commit money for longer periods, capital-protected products can offer a middle path between deposits and investing.

These products are typically provided by life assurance or investment companies and are designed to protect most or all of your original investment, provided you remain invested for the full term, often five to six years.

For cautious savers willing to commit money for longer periods, capital-protected products can offer a middle path between deposits and investing

Returns are usually linked to the performance of a stock market index or basket of investments. If markets perform reasonably well, investors may achieve better returns than cash deposits, while still maintaining a significant degree of protection. However, protection comes at a cost. Returns may be capped, and the structure of these products can be complex. It is important to understand exactly how returns are calculated.

Diversified cautious funds

For people who can tolerate modest fluctuations in value, diversified cautious funds may be worth considering.

These funds typically spread money across several asset classes including cash, bonds, property and a relatively small allocation to stock markets. The aim is to achieve steadier long-term growth while limiting volatility.

Unlike deposits, the value can rise and fall, particularly in the short term, so they are not suitable for emergency savings or money needed in the next three to four years. However, for medium- to long-term money, they may offer a better chance of preserving purchasing power after inflation.

Diversification helps reduce the risk associated with relying on any one investment type.

Tax and inflation

Two factors are often underestimated when people assess returns on cash savings – inflation and tax.

Even where savings accounts appear to offer attractive headline rates, Deposit Interest Retention Tax (DIRT) can reduce the real return significantly.

If inflation is running above the after-tax interest rate, the spending power of your money is effectively shrinking each year.

That doesn’t mean abandoning cash entirely. Maintaining an emergency reserve and short-term liquidity remains important. But large excess balances sitting indefinitely in low-yield accounts deserve a second look.

Martin Glennon is head of financial planning at ifac, the professional services firm for farming, food and agribusiness