Should the new SIA be allowed to hold depsosits?

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Protocol

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Here is AIB's balance sheet at the end of 2024.

Liability -- Deposits = 110bn approx

Asset -- Loans = 70bn approx
Asset -- deposit with the ECB = 37bn approx

What is the objective of this planned policy?
Does the Govt want the 110bn deposits figure to fall, as customers move their funds elsewhere?
The 110bn deposits figure could fall a lot, without affecting AIB's ability to finance lending.


But if a new low-tax or tax-free savings vehicle is created, won't AIB be able to offer their deposits within that wrapper?

So customers may stay with AIB, and simply reduce their DIRT bill?

A lot of people with deposits simply don't want to own, directly or indirectly, any shares, so even if the LAET is halved, would these deposits really be that elastic?


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Protocol said:
But if a new low-tax or tax-free savings vehicle is created, won't AIB be able to offer their deposits within that wrapper?

So customers may stay with AIB, and simply reduce their DIRT bill?
Click to expand...
No, deposits won't be included. The point is to get money out of deposits and into financial markets.
 
Sarenco said:
In particular, I don’t think the product should attempt to incentivise investment in any particular region, security or financial product. Leave that decision to individual savers.
Click to expand...

Sarenco says that the savings vehicle should be asset-agnostic.

Yet Corola states that deposits will be excluded.

In the UK ISAs, I believe that there are both cash ISAs and equity ISAs?
 
Protocol said:
In the UK ISAs, I believe that there are both cash ISAs and equity ISAs?
Click to expand...
www.gov.uk

Individual Savings Accounts (ISAs)

Types of ISA available, the tax-free ISA allowance, withdrawing money and transferring ISAs.
www.gov.uk www.gov.uk
There are 4 types of ISA:
  • cash ISA
  • stocks and shares ISA
  • innovative finance ISA
  • Lifetime ISA
Click to expand...
www.gov.uk

Individual Savings Accounts (ISAs)

Types of ISA available, the tax-free ISA allowance, withdrawing money and transferring ISAs.
www.gov.uk www.gov.uk

What you can include in your ISAs​

Cash ISAs can include:
Stocks and shares ISAs can include:
  • shares in companies
  • unit trusts and investment funds
  • corporate bonds
  • government bonds
...

Lifetime ISAs may include either:
  • cash
  • stocks and shares
Innovative finance ISAs include:
  • peer-to-peer loans - loans that are given to other people or businesses without using a bank
  • ‘crowdfunding debentures’ - investing in a business by buying its debt
  • funds where the notice or redemption period means they cannot be held in a stocks and shares ISA
Click to expand...
 
@Protocol

Yes, that’s my opinion.

I think the objective of tax-advantaged savings accounts should be to enable middle Ireland to build wealth and financial resilience.

The primary objective, IMO, should not be incentivising investments in equities (either generally or relating to any specific region) that would be inappropriate in individual circumstances.

For example somebody saving for a short-term expense like a house deposit or college fees, etc.

I think we can all agree that the current tax treatment disincentives investment in equities where it would be prudent to do so.

Well, we shouldn’t go to the other extreme….
 
Protocol said:
A lot of people with deposits simply don't want to own, directly or indirectly, any shares, so even if the LAET is halved, would these deposits really be that elastic?
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I wonder how much of this is due to lack of knowledge, or some inertia. Maybe the government hype of a new product will sway people.
 
I totally agree with previous posts.

It'll need to be quite a good opportunity versus what exists currently because a lot of money currently on deposit isn't even being held there because the owners want to invest but are put off by high taxes. For a high proportion of these deposits, the owners have likely never even considered the idea of investing in equities.

If the new product is only slightly better than the status quo, a very small percentage of the deposits the government are eyeing up will move - likely quite an embarrassment for whoever comes up with the scheme.

For example, the models being talked about where a percentage of funds held are taken in taxes, regardless of whether profits are earned or losses incurred, will probably turn off a majority.
 
ronaldo said:
For example, the models being talked about where a percentage of funds held are taken in taxes, regardless of whether profits are earned or losses incurred, will probably turn off a majority.
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The first €30k is entirely tax free on Swedish ISKs.
 
This is a pretty fundamental question.

On the one hand the objective is to encourage people to switch their deposits into longer term more productive asset classes.

On the other hand, deposits are the right investment for some people - especially younger people saving the deposit for a house. It doesn't seem right to treat them less favourably than people who have probably cleared their mortgage and are considering longer term investments.
 
HMRC said:
Figures from HMRC show almost half (47%) of Cash ISAs are held by people with incomes of less than £20,000 a year
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Should we really be pushing low income savers into equities? We also need some impetus to boost the returns on deposits. Increasing State Savings rates would help.
 
This is a quote from Christine Lagarde

www.ecb.europa.eu

Turning size into scale: Europe’s new growth model

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency.
www.ecb.europa.eu www.ecb.europa.eu


"European households hold more than €12 trillion in cash and deposits – roughly one-third of their financial assets. In the United States, the figure is closer to one-tenth.

If EU households were to align their deposit-to-financial assets ratio with that of US households, a stock of up to €8 trillion could be redirected into long-term, market-based investments – or a flow of more than €350 billion annually."


The implication here is clearly to reduce deposit holdings.

This quote draws on an earlier speech, Nov 2024:

www.ecb.europa.eu

Follow the money: channelling savings into investment and innovation in Europe

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency.
www.ecb.europa.eu www.ecb.europa.eu

Follow the money: channelling savings into investment and innovation in Europe​


......As I see it, the core problem of CMU is that the “pipeline” from savers to innovators is blocked at three key stages: entering, expanding and exiting.

First, European savings are not entering capital markets in sufficient volumes because they are concentrated in low-yielding deposits.

Second, when savings do reach capital markets, they remain trapped in national silos and are not expanding throughout the European economy.

Third, once savings have been allocated by capital markets, they are not exiting towards innovative companies and sectors owing to an underdeveloped ecosystem for venture capital."

Again, it's clear that she means to direct or channel savings away from deposits.
 
It's very clear that for most people, switching from deposits to equities would be a good idea and this should be encouraged.

But it does conflict with the idea that for the lower paid and for those saving for a house, who could not handle the volatility of the stockmarket, deposit accounts are better. And it just doesn't sit well with me why we give a tax break to those who can afford to take a risk and not give one to the lower paid.

I don't know how to square the circle.
 
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