What exactly determines state savings interest rates?

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noelÓm

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Is it simply the sovereign borrowing requirement? As in, the NTMA need to borrow to finance a government deficit and so they push up interest rates on state savings products to help do this? Is this what has happened historically?

What would happen if the state ran a budget surplus over an extended period? Would state savings products just become less attractive or do the NTMA try to tie their rates to other market rates somehow?
 
There is no magic formula - the interest rate is set to attract the savings that NTMA target
 
I doubt if state savings form significant part of overall governmentborrowings

Bonds would be far more significant
 
Does anyone recall how state savings rates responded to interest rate rises in the mid-2000s? Or even during the sovereign crisis?
 
I did a few of the 10 years products from about 2010, the highest was a 10 year bond, with 40 % tax free interest, and a further 10% interest, which was subject to DIRT. I believe that was about 2012

They gradually dropped to 45 %, 40 %, and had dropped to 25 % by October 2014, and eventually, down to 10 % around 2018, but not totally sure of the year.

More in this older thread:

Historical rates on National Solidarity Bonds

Hello everyone. I just signed up here. I hope this inquiry is in the right place. Would anyone know where I could find the rates available on the 10 year NTMA solidarity bond for June and July 2013. I put away some money in a few of these back then and it looks like the rate applied may be less...
www.askaboutmoney.com

But, i’d say we’l be waiting for another few ECB rate increases, before, state savings will increase. We had historically low interest rates for over a decade, its only now beginning to change, and it will be slow, hence the state savings, are more likely to be slow to increase also. I certainly would not expect any increase to their rates in 2022.
 
I don’t think State Savings are an efficient way to fund the government. Rates are usually higher than on bonds and they are more hassle. They are stickier, though.
I think they are more of a social service originally aimed at the widows and orphans, and of course grandchildren. That’s why there are maximum holding limits.
Rates would be higher except for lobbying from the commercial banks that they are unfair competition. Rates will rise when we see increases in deposit rates, just keeping ahead of them but crucially being tax free.
 
In 2009-2013 or so the state was pretty desperate for funds. Banks were short of deposits too, and were paying decent rates to secure them so there was competition between banks and government.

Banks are swimming in deposits now, and government can borrow easily on the markets. So I suspect state savings rates won't rise very much this time.
 

Savings Accounts in France: Livrets, Plan d’Epargne & Other Options​

First published: 22nd June 2021
Last updated: 1st Feb 2022

Was updated last February!!
 
Why no rise on state savings yet another hike on way in October by December there has to be higher rates from state savings surely.
 
Well the NTMA announced that they are fully funded for the rest of the year already, so they don't need to raise any money, so can't see any reason for them to raise their rates anytime soon.
 
Rasputin said:
Well the NTMA announced that they are fully funded for the rest of the year already, so they don't need to raise any money, so can't see any reason for them to raise their rates anytime soon.
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I don't think funding is a driving force in state savings. After all why have maximum holdings? It is more of a social service which has tended to match but be slightly ahead of retail deposits. The interest rate on deposits and mortgages seems very slow to rise for reasons I don't understand but they will some time soon.
 
Rasputin said:
Well the NTMA announced that they are fully funded for the rest of the year already, so they don't need to raise any money, so can't see any reason for them to raise their rates anytime soon.
Click to expand...
State savings are really good value for the Exchequer now that yield on ten-year market debt is over 2% now.

Retail depositors don't disappear in a puff of smoke either.

However they are really in competition with bank deposits. Once they start to rise the NTMA will follow.
 
I’ve 50 k in the post office in the ten year tax free savings bond , interest is circa 1% , I’m going to withdraw it and buy UK government GILTS, 4% plus yield
 
NoRegretsCoyote said:
What's the tax treatment for an Irish resident?

Is the currency risk worth it?
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The pound isn’t the Argentinian Peso, while it could weaken further, I don’t believe for a second that a default is likely, 4% plus even on the two year

Tax would be the same on bond coupons as on dividend yields, UK is pretty benign in that sense relative to Germany or France
 
galway_blow_in said:
I don’t believe for a second that a default is likely,
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Nor do I.

It's completely plausible that UK inflation is 20% more than euro area inflation over the next five years though, which all else equal will see the pound depreciate by the same amount against the euro.
 
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