KBC introducing 'interest first' product & reducing rates
- Thread starter digweed
- Start date
Brendan Burgess
Founder
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- 52,197
This is another con, similar to the one from PTSB.
People will be fooled by this into thinking that they are getting something special.
The date of payment of the interest whether it is at the start, at the end, or every month, should be factored into the Compound Annual Rate
Deposit accounts should be compared by CAR and CAR alone.
If you have €10,000 to invest and you want €380 after 18 days, just invest €9,620 in an account with a higher CAR.
People will be fooled by this into thinking that they are getting something special.
The date of payment of the interest whether it is at the start, at the end, or every month, should be factored into the Compound Annual Rate
Deposit accounts should be compared by CAR and CAR alone.
If you have €10,000 to invest and you want €380 after 18 days, just invest €9,620 in an account with a higher CAR.
Shakespeare
Registered User
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- 124
I don't consider this a con all other variables aside and I liked the PTSB product and used it to get interest paid before budget time, thus saving on a budgetary DIRT hike (easy target to keep taxing interest on savings) bearing in mind DIRT has gone from 20% to 30% in the last few years, if someone thinks it'll be hit again then it's worth considering.
Yes, 3.80% AER is the best rate for a 1 year fixed term, at the moment. Ulster Bank pay 3.83% for 1 year 6 months.
Yes, 4.1% is for year one only with the EBS 'Family Saver' regular saver product.
I haver Money with ebs maturing in Sep and i had it away for 4.25% for 1 year
On the letter I got to notify me I can re invest the same money for a further 12 months @ 4.25% again!!
EBS had T&C's about 1 year ago, that allowed year 2 reinvestment at the year 1 rate. I would guess that you have one of those legacy products.
Interest upfront has the below advantages:
1) You are not subjected to DIRT rates on maturity which may be higher.
2) Your DIRT eligibility is assessed at account opening stage which will suit some people.
3) You have use of funds straight away. For some people, who want capital preservation, but need income for expenditure, this can act as a budgeting tool.
Interest upfront has the below disadvantages:
1) Due to the fact that you get the interest up front, the return is not as great, as one does not get compound interest. (Brendan's point)
2) Conversely, your DIRT eligibility is assessed at account opening stage which will not suit some people. For example, if you are aged 64 now and aged 65 at account maturity stage.
So, is interest up front worth doing?
The key aspect of the decision, for most people, will be expectations for DIRT rates. If you think DIRT will go up, then it is worth going for interest up front. If you think DIRT will stay the same, then you may be better off waiting for interest at maturity date.
1) You are not subjected to DIRT rates on maturity which may be higher.
2) Your DIRT eligibility is assessed at account opening stage which will suit some people.
3) You have use of funds straight away. For some people, who want capital preservation, but need income for expenditure, this can act as a budgeting tool.
Interest upfront has the below disadvantages:
1) Due to the fact that you get the interest up front, the return is not as great, as one does not get compound interest. (Brendan's point)
2) Conversely, your DIRT eligibility is assessed at account opening stage which will not suit some people. For example, if you are aged 64 now and aged 65 at account maturity stage.
So, is interest up front worth doing?
The key aspect of the decision, for most people, will be expectations for DIRT rates. If you think DIRT will go up, then it is worth going for interest up front. If you think DIRT will stay the same, then you may be better off waiting for interest at maturity date.
I have two PTSB interest first accounts, at the time there was some debate here about how PTSB were advertising them.
IIRC the 1 year deposit had a gross interest of 3.95% but an AER of 4.1% with the 4.1% figure being more prominent in the advertising. To get 4.1% you would have to immediately reinvest your "interest first" cheque for at at least 3.95% for the year. Unsurprisingly, the cheque could not be lodged in your fixed term deposit PTSB account so another account had to be used.
Personally, I bought State Savings certs with my PTSB cheques. It would also be possible to open a 2nd PTSB interest first account with your interest cheque from the first account but in that case, the cheque would need to be pretty big. IIRC the minimum amount for opening those interest first accounts was 3000 euro.
This KBC 1 year product is being advertised at 3.8% gross and 3.8% AER. Presumably if you get your interest first cheque and immediately reinvest it at 3.8% you'll end up with a total return of more than 3.8% for the year.
So unless there is something fundamental that I've missed I don't see the con here.
IIRC the 1 year deposit had a gross interest of 3.95% but an AER of 4.1% with the 4.1% figure being more prominent in the advertising. To get 4.1% you would have to immediately reinvest your "interest first" cheque for at at least 3.95% for the year. Unsurprisingly, the cheque could not be lodged in your fixed term deposit PTSB account so another account had to be used.
Personally, I bought State Savings certs with my PTSB cheques. It would also be possible to open a 2nd PTSB interest first account with your interest cheque from the first account but in that case, the cheque would need to be pretty big. IIRC the minimum amount for opening those interest first accounts was 3000 euro.
This KBC 1 year product is being advertised at 3.8% gross and 3.8% AER. Presumably if you get your interest first cheque and immediately reinvest it at 3.8% you'll end up with a total return of more than 3.8% for the year.
So unless there is something fundamental that I've missed I don't see the con here.
re kbc 3.8% problem red tape
i am trying to open an account with kbc fixed rate 3.8% 1 year, i sent them a cheque from davys stockbrokers in my name as davys cannot issue third party cheques, kbc also refuse to accept a electronic tranfer of funds from davys to open account, i live in asia so it will mean the cheque will have to be sent to my asia address and then i will sign it and send it all the way back,why all the red tape, ?? has the world gone mad?? mel
i am trying to open an account with kbc fixed rate 3.8% 1 year, i sent them a cheque from davys stockbrokers in my name as davys cannot issue third party cheques, kbc also refuse to accept a electronic tranfer of funds from davys to open account, i live in asia so it will mean the cheque will have to be sent to my asia address and then i will sign it and send it all the way back,why all the red tape, ?? has the world gone mad?? mel
Work around:
(1) Open a Smart Saver account.
(2) Wire money into the Smart Saver account.
(3) Request an internal transfer from the Smart Saver account to the 1 year term deposit account.