Savers in Ireland have it rough these days. Government imposes a punitive tax (41%) on interest income (DIRT) and many banks scarcely pay any interest worth writing home about. So between earnings potential and holding onto it, options are very, very limited for your cash to grow. That said, there are more ways to squeeze a few cent from the current market.
To really look at what consumer choices really exist, let’s consider all of the consumer options, not just deposits and savings accounts.
In the deposit arena, there are only a few options open to consumers that really pay market leading interest income. For example, the UK savings giant, Nationwide UK (Ireland) offers up to 4% before the 41% DIRT tax is applied on its regular savers account. KBC, the expanding brand also offer some good deals for regular savers with gross 3.5% offers (before DIRT) followed by Permanent TSB, which promotes a 2.5% deal. So the real challenge is on earning some interest income and actually holding onto it as DIRT will reduce the earnings significantly!
In the other area of deposits, Lump Sum, the returns generally are very, very low. For example, the best deals on the market are on offer from Rabo Bank but with rates generally at the 1.95% – 1.75% range before DIRT, this makes for pretty limited interest income options. Some of the Rabo Bank deals have access restrictions of between 90 days and 30 days with one of the accounts offering instant access. The interesting feature of the Rabo Bank are available via online only so for those that like to transact face-to-face, these offers are not for them (Rabo doesn’t operate a branch network in Ireland anyway!).
Of the Irish savings institutions, Permanent TSB offers one of the better deals on the market for Lump Sum savers with a 1.75% offer, but it is an online-only deal if you want instant access.
What about the State Savings (DIRT-free) and National Solidarity Bond deals?
Despite being free of DIRT, the various State deals on offer via An Post don’t make for very appealing offers. Yes, while the concept of DIRT-free may earn some headlines, the reality is that these products stopped offering any meaningful return on deposit some time ago and are a shadow of their former self. For example, if we look at the 4-Year National Solidarity Bond (Issue 5), the AER on this deal (the AER is the real measure on return) is just .99% (or 4% Gross). The 3-Year Savings Bond (Issue 16) offers even less (.83% or 2.5% gross).
One issue that depositors have to watch out for is the digital divide and this is where some institutions offer their best interest rates for deposits. As pointed out earlier, Rabo Bank beats the market generally but it deals are only available via online banking simply because it operated purely as an online bank. But AIB too as well as Permanent TSB also advertise deals that are only available online only so those shopping for the best deals need to check the fine print on online or not as no everybody (young and old) are entirely comfortable with online banking (especially after the Ulster Bank online fiasco of recent years). This online trick applies across both Lump Sum and Regular Saver accounts.
One important development in the most recent Budget was the introduction of DIRT free savings for first time buyers that are savings for the deposits towards their new homes. While the specific details on how the DIRT will be verified and refunded for qualifying accounts, its introduction will some as a welcome reprieve to those who will benefit more from the initiative. Of course, the new deposit rules for first time buyers has just created a whole new dynamic here so for many first time buyers, the savings term was just doubled!
Pension contributions – of course, this is the other side of savings that can sometimes be omitted from the narrative and pension contributions are a great tax-efficient savings scheme. In fact, they probably represent one the best savings deals on the market for those with qualifying income. When managed properly, income goes into an approved pension plan before income tax, can grow tax free and a percentage of income can exit a pension plan tax free (for example, 25% of the fund value up to a limit of €200,000 if using the ARF option). Not a bad deal in an otherwise very tough market!