5 yr Saving Cert or EBS regular saver

J

jrmam

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Hi there, Ihave a 5 year saving cert for €12,100 which has just matured. I don't particularly need the funds right now. I was going to reinvest with another 5yr cert @ 0.98 % but am thinking about using the money to fund a regular savings account with EBS who are offering 3% on monthly payments for one year. Which would be the bigger earner ?

Would appreciate your thoughts thanks.
 
The EBS account would return 1.5% in it's first year as you have to drip feed it funds. However, you would have to pay DIRT on the interest earned. DIRT is currently pretty high at 41% so the actual return to you would be .885%. You don't pay DIRT on state savings so you would get the full 0.98%. In year one, the state savings account give a better return.

The rate for the EBS account after year 1 isn't advertised so it's impossible to tell which is better after year 1. The EBS account would have to pay about 1.7% for it to work out better than the state savings account. The rate for the EBS account is likely to change whereas the state savings account is fixed for the 5 years so you also have to factor this in.
 
Even after 1 yr you won't be getting a pa rate for a comparison as you don't have that money in for the yr, but only deposited at a monthly rate of the interest.
 
Hiya noproblem, I think Connard factored that in. Drip-feeding the EBS account at the max of €1,000/month gives:

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That works out to an AER of 1.6% before DIRT. The rate for the second and subsequent years in the EBS account is the rollover rate for their 12-month €100k+ term deposit, currently 0.35% before DIRT. Clearly the State Savings option is better, with the caveat that the rate is fixed for the term.
 
dub_nerd said:
Hiya noproblem, I think Connard factored that in. Drip-feeding the EBS account at the max of €1,000/month gives:

gif.latex


That works out to an AER of 1.6% before DIRT. The rate for the second and subsequent years in the EBS account is the rollover rate for their 12-month €100k+ term deposit, currently 0.35% before DIRT. Clearly the State Savings option is better, with the caveat that the rate is fixed for the term.
Click to expand...

That, dear Sir, is a great answer. Thank you.
 
A couple of complications in the above reasoning.

Whilst it is true that you only enjoy 13/24ths of a year at 3% you should build in that you would earn something on the other 11/24ths of the year.

More importantly, if you exit savings certs after 1 year you get .05%!! So definitely savings certs are not the thing on a one year view.

But, I hear you say, you do not take a one year view. What could change that is if interest rates were to rise and the smart money seems to be that this will happen (they surely can't get any lower). If they rise then you will wish to take advantage of the new higher rates and if you had been in savings certs then that 0.05% after one year would make that option clearly worse than most alternative deposits (with hindsight).

But it's not just after one year that this is the case; any early encashment of savings certs is bad and I feel fairly certain that over the next 2 to 3 years we will see some sort of return to normality on deposit rates. I wouldn't be investing in 5 year savings certs on these terms.
 
I'm not sure about that Duke. Let's assume you need to take out one year term deposits at least -- rates for everything else are fractions of a percent. Let's also assume you can't keep going to regular savings accounts -- they are generally for new money only and have stringent savings limits. The five percent total return on Savings Certs is grossed up to the equivalent of 8.5% if you pay DIRT, or 9.1% if you are a chargeable person.

The OP gets 1.6% on a Regular Saver in their first year and lets say they can get another 0.2% on the money waiting to be drip-fed. That's 1.8% in year one. Then we go to 12-month term deposits, currently about 1% at best. Let's suppose we get a 50 basis point rise in the next year and that manages to filter through to term deposits. Even with a 50 basis point rise every year for the next four years you'd only be getting 1.5%, 2%, 2.5%, 3% in years 2-5. The grand total would be less than 11% before tax, or 6% after tax if you are a chargeable person.

Would you bet that retail rates will go up 50 basis points every year for the next four years? ... and the prize for being right is an extra 1% after tax?

(P.S. I haven't included the reducing DIRT rate over the next couple of years which improves things slightly)
 
The ebs rate after year one is .35 or .035 , have to double check it, I know that an instant access account was easily beating it. They are extremely cagey about how they communicate their rate, I only received it when my account renewed and then closed the account immediately
 
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