State Savings Rates (incl. Prize Bonds) to Increase - Finally

Lightning said:
Yeah, there is a lot to be said for direct investment in Irish government bonds via Degiro or Interactive Brokers over term deposits especially with this zero coupon bond.
Click to expand...
I just learned that deposit interest over €5,000 per annum is subject to 4.2% PRSI on top of the 33% DIRT!

All the more reason to consider low/zero coupon government bonds, if you have a large sums on deposit.
 
The IT article quoted earlier by Fiona Reddan:

"Last month, you would have earned a return of €4,400 on a deposit of €20,000 held for 10 years. Now, you can earn up to €6,000 on the same deposit over the same period. That’s a noticeable uplift.

One big advantage of such a product is that you are not locked in. You don’t have to hold it for 10 years, there is no penalty if you cash in early, you will just miss out on future interest payments, said a spokesperson for State savings."

What rate is this? Post Office is only 1.5%?
 
podgerodge said:
@Freelance but she says you're not locked in (trueish) and no penalty for cashing in early (falsish) ?
Click to expand...
Technically she is correct on both accounts, but it's very misleading, The interest rate in the early years is negligible, and in reality that product is only suitable if there is close to zero chance of needing to withdraw funds early. I suppose the point is that unlike many term deposits, in an emergency you can access some or all of the funds, but at great cost because of the tapering interest rate. This is how it works based on an initial amount of €100,000 :

1789477468222.webp


So if you exit after 23 months you get zip, nada, nothing other than your initial investment. If you pull out after 4 years and 11 months you get €3,500, an AER less than .86%. And so on.

So in summary, if you withdraw in the first two years you are being royally screwed, if you withdraw in years 3-8 you are being screwed, and it is only if you hang in until years 9 or 10 that you come out with some kind of decent return.

The AER column is the actual AER offered. The AER DIRT is my estimate of the return you would need to get the same net monetary return if you put your money into a product that was liable to DIRT. This shows that the return in years 9 and 10 is pretty decent, but only if you leave it for close to the full duration.

The same issue arises in relation to early redemption of Savings Bonds and Savings Certs. It wasn't always so. Up to the mid 2010s the interest rate was much closer to being even across the term, and so the penalty for early redemption was a lot lower. This was very useful for nest egg/rainy day money, especially for older folk who only ever wanted the funds for things like medical emergencies. It was one of a number of nasty changes introduced by State Savings/Dept of Finance around that time that greatly damaged the products.
 
Last edited:
You must log in or register to reply here.
Back
Top